Con-Pac Systems (Aust) Pty Ltd v Wijeyewardene - [2006] FMCA 985

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CON-PAC SYSTEMS (AUST) PTY LTD v WIJEYEWARDENE

[2006] FMCA 985

TRADE PRATICES – Misleading or deceptive conduct – representation made to induce the applicant to manufacture a conveyor system – representations misleading or deceptive – no reasonable basis for representations as to capacity to pay nor future expectations – unconscionable conduct - damages payment.

Trade Practices Act 1974 (Cth)
Fair Trading Act 1999 (Victoria)
Instruments Act 1958 (Victoria)
Corporations Act 2001
Federal Court Rules
Federal Magistrates Court Act 1999
Federal Magistrates Court Rules2001

Futuretronics International Pty Ltd v Gadzhis (1992) 2 VR 217
Miba Pty Ltd vNescor Industries Group Pty Ltd (1996) 141 ALR 525
ACCC v CG Berbatis Holdings Pty Ltd (2000) FCA 2
Blomley v Ryan (1956) 99 CLR 362
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447

Applicant:

CON-PAC SYSTEMS (AUST) PTY LTD

Respondent:

KALUTARA ARATCHIGE GAMINI WIJEYEWARDENE

File number:

MLG 1039 of 2004

Judgment of:

Hartnett FM

Hearing dates:

3, 5, 6, 7 April and 25 & 26 May 2006

Delivered at:

Melbourne

Delivered on:

1 August 2006

REPRESENTATION

Counsel for the Applicant:

Mr Stuckey

Solicitors for the Applicant:

Zervos Lawyers

Counsel for the Respondent:

Mr Clarke

Solicitors for the Respondent:

Frenkel Partners

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 1039 of 2004

CON-PAC SYSTEMS (AUST) PTY LTD

Applicant

And

KALUTARA ARATCHIGE GAMINI WIJEYEWARDENE

Respondent

REASONS FOR JUDGMENT

Background

These proceedings commenced by the filing of an application on 10 August 2004 to which there was annexed a statement of claim. The respondent was at all material times a director, shareholder and controlling officer of a company known as Nature’s Own Brands Pty Ltd. The respondent’s response was filed on 1 October 2004 with further and better particulars being filed on 24 August 2005. Adjournment of the proceedings was sought and granted to the parties prior to final hearing commencing in April 2006. The applicant relied in the proceedings on an amended statement of claim filed 20 March 2006. In response to that document an amended defence was relied upon by the respondent, that document being filed at the commencement of the final hearing of the proceedings.
The applicant relied upon evidence as contained in affidavits sworn by:
a)Mr Kerry Filidis on the 18 March 2006. Mr Filidis was at all material times a director of the applicant;
b)Mr Mervyn Young on the 3 April 2006. Mr Young was at all material times an employee of the applicant; and
c)Mr Daniel Johnson on the 4 April 2006. Mr Johnson was at all material times an employee of a fabricating business.
Each of these persons was cross-examined by the respondent’s counsel. The respondent relied upon 2 affidavits sworn by him on the 4 April 2006 and he likewise was cross-examined by counsel for the applicant. In addition, Mr Yeo one of the Administrators of the company Natures’ Own Brand Pty Ltd and Mr Hampton ANZ Bank Manager were called to give evidence.
Statements of fact in these reasons should be taken as finding of fact on the balance of probabilities.
The company Nature’s Own Brands Pty Ltd was registered in Victoria on 2 June 1986. It is a proprietary company limited by shares; its registered office being 41 Holloway Drive Bayswater. It became a company under administration on 26 May 2004. As a result of Nature’s Own Brands Pty Ltd entering into administration the applicant commenced this proceeding against the respondent who was at all material times a director, shareholder and controlling officer of Nature’s Own Brands Pty Ltd. The administrators of Nature’s Own Brands Pty Ltd ceased to act as administrators on 4 August 2005 wherein the company reverted to the control of the respondent. The respondent, in his affidavit sworn 4 April 2006 being an affidavit on which he relies in the proceedings described the business of "importation, packaging, distribution and marketing of tea products, cocoa products and related foods” as being carried on by Nature’s Own Brands Pty Ltd. Most of Nature’s Own Brands Pty Ltd sales were made to the larger retail groups including Coles and Woolworths.
In approximately 2001 a company “Fresh to You” Food Services Pty Ltd was established by the respondent. It operated, like Nature’s Own Brands Pty Ltd, as a trading entity. The respondent was at all material times a director, shareholder and controlling officer of this company.
From approximately 1999 onward until mid-2003 Nature’s Own Brands Pty Ltd supplied tea products to Woolworths under Woolworths' private label “Home Brand”. In the latter years in particular Woolworths' practice was to publicly seek competitive tenders for the supply of tea product for the Woolworths “Home Brand” label. Nature’s Own Brands Pty Ltd was the successful supplier throughout the period to mid-2003. In addition and from approximately 1991 until the present Nature’s Own Brands Pty Ltd has supplied cocoa products to Coles. As with the Woolworths' tea contract the practice was for Coles to seek competitive tenders from suppliers for cocoa products which were sold by Coles under their proprietary labels “Savings” and “Bi-Lo”. The practice was for tenders to be sought more or less on an annual basis such that Nature’s Own Brands Pty Ltd had to renegotiate on an annual basis. Prior to mid‑2003 the Nature’s Own Brands Pty Ltd tea business substantially comprised contracts for home brand teas for Woolworths. As part of the development of the company's businesses the respondent claimed his intention was for Nature’s Own Brands Pty Ltd to focus on the importation, mixing, packaging and the supply of the finished products to another company in the group of companies established by the respondent, that other company being “Fresh to You” Food Services Pty Ltd and this company would then market and wholesale the tea products.
In mid-2003 Coles sought competitive tenders for the supply of its in-house brand tea under the “Farmland” brand name. “Fresh to You” Food Services Pty Ltd tendered for that contract. Prior to mid-2003 Nature’s Own Brands Pty Ltd had not supplied tea to Coles. It had supplied it to Woolworths. During mid-2003 Nature’s Own Brands Pty Ltd did not tender for the prospective Coles “Farmland” tea-supplied business because the respondent said that would have been inconsistent with his strategic plan for the businesses. In mid-2003 Woolworths sought competitive tenders for the supply of generic tea under the Woolworths' “Home Brand”. The respondent claimed that again consistent with his business development plan, “Fresh to You” Food Services Pty Ltd tendered for that contract and Nature’s Own Brands Pty Ltd did not tender.
Mr Wijeyewardene's evidence which I accept is that even during the period in which Nature’s Own Brands Pty Ltd was under administration it continued to operate the cocoa aspect of its business. The income from that continuing cocoa business was banked by the administrators in the ordinary course of the administration. During the period to mid-2003 sales in the tea businesses were increasing. Nature’s Own Brands Pty Ltd employees mixed, packaged and warehoused not only Nature’s Own Brands Pty Ltd “Home Brand” teas for Woolworths but also the “Fresh to You” Food Services Pty Ltd specialty teas under the “Aussie Teahouse” brand name which that company was supplying to Coles. The respondent’s evidence was that administratively and logically it was desirable for all the importation, blending, packaging and warehousing elements of the business to be conducted by the one company, Nature’s Own Brands Pty Ltd, and for marketing and sales to be conducted by another, namely “Fresh to You” Food Services Pty Ltd. Prior to mid-2003 Nature’s Own Brands Pty Ltd charged “Fresh to You” Food Services Pty Ltd for the blending, packaging and warehousing services required for the “Fresh to You” Food Services Pty Ltd “Aussie Teahouse” product.
Up to mid-2003 Nature’s Own Brands Pty Ltd had some automation. Mr Wijeyewardene formed the view that in order for its blending, bagging and packaging to remain competitive it had to automate most of those aspects of its business. He desired to acquire machinery which would dovetail in with the existing tea-bagging equipment already owned by Nature’s Own Brands Pty Ltd.
The applicant company manufactured conveyor and packing systems for use in industry. It manufactured parts of such systems itself and it obtained the balance of those systems from third parties.
In or about late May or June 2003 Mr Mervin Young, one of the applicant's employees and a witness in the proceedings received a telephone call from an employee of the respondent’s business wherein the company Nature’s Own Brands Pty Ltd was seeking a quotation for a conveyor system. As a result Mr Young and subsequently Mr Filidis with him attended at the office, factory and warehouse complex of Nature’s Own Brands Pty Ltd which was situate at 41 Holloway Drive in Bayswater. Whilst at the premises Mr Filidis and Mr Young inspected the working operations of the business, observing the existing systems which the company already had operating.
During the course of the visits Mr Wijeyewardene explained to Mr Filidis and Mr Young the then operating system and his requirements to improve it. Mr Filidis and Mr Young were shown two packaging machines which operated to fill tea into teabags and put teabags in cartons of various sizes. Mr Filidis said that Mr Wijeyewardene explained to he and Mr Young that he intended to acquire four further machines from Argentina to package teabags and another two at a later stage being a total of eight tea packing machines. Mr Filidis said that Mr Wijeyewardene explained that he wished to have those machines connected by a conveyor system which would supply and feed automatically empty cartons from a carton erector (with such carton erector to be supplied by others) to eight tea packing machines and convey full cartons to a packaging area for shrink wrapping and then to be manually filled into larger cartons/boxes ready for dispatch thus allowing the quantity being processed to be increased.
Mr Wijeyewardene said that in broad terms what he was seeking from the applicant was a conveyor which would link the automated carton erection machine via a conveyor system to the existing tea-bagging machines and from there via another conveyor back to the table area for the filled teabag packages to be closed (manually).
Mr Wijeyewardene deposed in paragraphs 42 and 43 of his first affidavit sworn the 4 April 2006 and relied upon by him as to the process thereafter:
After the packages were closed manually, there was to be a conveyor which would have taken the closed packages to a machine (which Nature’s Own Brands Pty Ltd already had) which sealed closed packages in cellophane. The sealed packages then were to be passed along a short conveyor from which they were to be (and now are) manually placed in cardboard cartons.
Paragraph 43:
They were then to be placed on another conveyor and to pass through a taping machine which effectively sealed the cardboard cartons. That taping machine was already in operation with Nature’s Own Brands Pty Ltd. Once the cartons had been sealed, they were to proceed along another conveyor (to be supplied to by Con-Pac) which would have conveyed them to a stacking area for stacking on a wooden pallet. The pallet then would be taken to the storage warehouse for despatch.
Mr Wijeyewardene also gave evidence in paragraphs 48 and 49 of his affidavit that he sought in addition to automate each of the existing four tea‑bagging machines which had an overhead funnel into which, until mid-2003, bulk tea was manually poured from large containers. He wished to automate that process through the provision of large hoppers to be constructed and erected above the funnels. The applicant’s brief included the provision of those hoppers. Each of them was to be of capacity sufficient to hold approximately 11 kilos of cut tea and the system to be quoted on was to include a conveyor system for the bulk tea to move up and into the overhead hoppers.
In July 2003 Mr Young and Mr Filidis again visited the factory premises in order to allow them to prepare plans for Mr Wijeyewardene's approval.
Mr Filidis and Mr Young produced plans based on the respondent's ideas and provided an initial “budget” quotation on 21 July 2003, such “budget” quotation being not intended to bind the person giving it. The price in that “budget” quotation was $185,000 excluding GST. Such “budget” quotation was for the design, manufacture, supply, installation and commissioning of a conveyor system for boxes of various sizes in accordance with Mr Wijeyewardene's specifications. The “budget” quotation was prepared by Mr Young and forwarded to Mr Wijeyewardene and Nature’s Own Brands Pty Ltd. The total project time line was anticipated to be 10 to 12 weeks duration.
The respondent expressed a desire to reduce the cost if possible and as a consequence in late July and early August 2003 the applicant redesigned the system to operate differently allowing some cost savings to be made. At a meeting on or about 5 August 2003 at Nature’s Own Brands Pty Ltd factory premises, Mr Young and Mr Filidis delivered a quotation dated 5 August 2003 and prepared for Nature’s Own Brands Pty Ltd. This quotation was said to be for the design, manufacture, supply, installation and commissioning of an conveyor system for teabag line as per discussions of 1 August 2003 between the parties and the applicant’s revised drawing, reference 3070100 rev 3. The price for the works was $163,500 excluding GST with a time line for the total project of approximately 10 to 12 weeks. Payment terms were that a 40 per cent deposit was required with the official purchase order, a further 40 per cent payment on completion of pre-delivery trials at the premises of the applicant and a final 20 per cent payment upon completion of the installation and commissioning.
Further discussions ensued between the parties with Mr Wijeyewardene wishing to increase the capacity of the system to be able to handle two different sizes of cartons which added to the system a more complicated distribution conveyor with automatic pusher system and a more sophisticated electrical and pneumatic system. The design was revised again with a further quotation prepared. Mr Wijeyewardene also wished to pay less of the cost of the job at the commencement and requested that the instalments be adjusted. Accordingly a revised quotation was prepared on or about 15 August 2003.
Pursuant to this revised quotation the total cost was $180,000 exclusive of GST. The payment terms differed in that the first progress payment, being deposit with official purchase order, was to be 10 per cent of the purchase price with a second progress payment of 20 per cent to be made on completion of pre-delivery trials at the premises of the applicant and a final payment of 70 per cent to be made in seven equal payments every six weeks with dates to be confirmed for a period of 42 weeks. The total project time was estimated to be 10 to 12 weeks.
A meeting was then held on 19 August 2003 between Mr Filidis, Mr Young and Mr Wijeyewardene with Mr Wijeyewardene indicating that he wished to proceed with the order. I accept the evidence of Mr Filidis that Mr Wijeyewardene's indication that he would proceed with the order came after a conversation held between the applicant and respondent wherein the respondent indicated that he would have difficulty making a substantial up‑front payment because his company would be borrowing the money or leasing the equipment from the bank in order to acquire it.
I accept the evidence of Mr Filidis that Mr Wijeyewardene asked the applicant whether or not it could carry the initial costs of construction and in reply to which Mr Filidis said that if he were able to obtain finance to allow the applicant to fund the construction itself he would be prepared to do so on the condition that the respondent would make a series of progress payments during construction and thereafter complete payment in full. I accept Mr Filidis' evidence that he indicated he would first need to see whether he could obtain such finance. I accept the evidence of Mr Young corroborating that of Mr Filidis.
Nature’s Own Brands Pty Ltd then provided a cheque to the applicant the sum of $19,800 which represented the first progress payment pursuant to the terms of the quotation of 15 August 2003. That sum included $1,800 of GST. This payment was made on 19 August 2003.
Mr Filidis was successful in obtaining finance to borrow the money necessary to purchase the materials to construct the conveyor system although it took him some time. He borrowed $65,000 from a company called the Money Shop on the security of his parents-in-law's house on or about 15 October 2003.
On 24 October 2003 Mr Filidis completed an order confirmation and forwarded it to the respondent on behalf of Nature’s Own Brands Pty Ltd by facsimile. Included in that facsimile message was an apology by Mr Filidis for the delay together with written confirmation that he had been awaiting finance approval. The order confirmation form provided for nine instalments of the price including the deposit of 10 per cent and a payment of 20 per cent upon satisfactory testing of the system at the applicant's premises. It is also set out a timetable for the works.
The payment terms were said to be in consideration of the applicant performing its obligations under the agreement. Nature’s Own Brands Pty Ltd and/or nominees would pay the purchase price to the applicant as set out in the nine progress payments and the timelines provided for works to conclude with installation and commissioning at the company’s Bayswater site on 10 December 2003.
On 28 October 2003 the applicant received a letter sent by facsimile from the respondent on behalf of Nature’s Own Brands Pty Ltd. Mr Wijeyewardene gave evidence that by October 2003 he had become concerned that the applicant was not going to meet the timelines provided in the revised quotation of 15 August 2003 that being the only order of confirmation accepted by Nature’s Own Brands Pty Ltd. His evidence was that he became even more concerned and concerned as to applicant’s financial ability to deliver when on 24 October 2003 he received (from the applicant) the facsimile referred to in paragraph 25 of these reasons. Accordingly he forwarded correspondence to the applicant referring to Nature’s Own Brands Pty Ltd payment of the $19,800 deposit; the contract executed in August for a production system which had delivery and installation dates of mid to end October 2003; and noting that the applicant appeared to be in default of the contract proposing a variation with new delivery timetables
"which may render the contract we have executed invalid."
Mr Wijeyewardene further stated in that correspondence that he had been trying to contact the applicant and meet with him on many occasions - I find on the evidence that not to have been a truthful assertion - and desired for the matter to be resolved. In the event there was no resolution he threatened that legal action would be commenced against the applicant. Further the respondent said,
"We would be suffering losses due to your default on our existing contract, which we would be claiming from you. We further may consider action for recovering our deposit on the basis that you have defaulted on the contract."
The respondent’s evidence that the original target date for completion had been put back to such an extent that “Fresh to You” Food Services Pty Ltd and Nature’s Own Brands Pty Ltd companies ability to supply under the Coles contract was potentially threatened.

Upon receipt of the facsimile of 28 October 2003, Mr Filidis and Mr Young went to the respondent's office and met with him. I accept Mr Filidis evidence that he advised the respondent that the 12-week period of work had to run from the date on which the company was able to obtain finance to fund the project and accordingly the 12 week period commenced on the 15 October 2003 when finance was approved. I further accept the evidence of Mr Filidis and Mr Young that Mr Filidis advised the respondent that the best date for installation of the conveyor system was at Christmas and New Year when the factory was shut down. Further, that Mr Wijeyewardene responded that that would be a suitable time for completion.
Upon returning to the applicant's premises Mr Filidis prepared a revised order confirmation setting out the dates which had been agreed at the meeting and forwarded such revised order confirmation under cover of facsimile cover sheet to the respondent on 5 November 2003. The installation and commissioning at the Bayswater site of the conveyors and assembly table was in that document to occur in a timeline of 28 December 2003 to 12 January 2004.
Shortly thereafter and on 13 November 2003 Mr Wijeyewardene forwarded another facsimile on behalf of Nature’s Own Brands Pty Ltd to the applicant noting that the contract timelines had not been complied with and that the commissioning of the system should have been around 10 November 2003. In the circumstances Nature’s Own Brands Pty Ltd would cancel the contract on the basis of the applicant's defaults if the project was not installed and commissioned in a matter of days and hours rather than weeks. In that correspondence Mr Wijeyewardene said:
We are now experiencing severe downtime and rejects due to the absence of the conveyor system which was to be part of the production process for this new product line. Our production is down by up to 40 per cent due to the absence of the conveyor system. We value this loss of production over two shifts at around $1000 per day.
Legal action was again threatened if the conveyor system was not installed in a matter of days. Upon receipt of that letter Mr Filidis and Mr Young again attended at the respondent's office to meet with him. Mr Wijeyewardene was advised that the applicant would not be ready until December to install the conveyor system. I accept Mr Filidis' evidence that Mr Wijeyewardene then said words to the effect,
"Can you help me out then in another way by installing the hoppers. I will be getting delivery of another four tea packing machines and I want to rig them up."
The hoppers were to be part of the system which was being installed. They were to go above the tea packing machines to feed leaves into them. The conveyor would be positioned adjacent to those machines to carry away the bagged product. The hoppers were being manufactured by a third party, Metal Works, run by Mr Garry Khaan. Mr Filidis indicated he would make inquiries of Mr Khaan. Mr Filidis did so and toward the end of November indicated to Mr Wijeyewardene that the hoppers could be installed but that the next progress payment under the agreement would be required. By that time Nature’s Own Brands Pty Ltd had only paid the initial deposit.
Mr Filidis' evidence, which I accept, was that notwithstanding the hoppers could be installed such installation would not be of any significant use to the respondent as he still had only four machines and would lose a couple of days production when the machines were moved. Mr Filidis then said words to the effect that as the respondent was in his Christmas rush before the holidays there was little to be gained by installing the hoppers immediately and the balance of the system would be being installed in approximately 14 days in any event.
Mr Filidis advised the respondent that he would need payment before delivery as had been set out in the quotation. Mr Wijeyewardene responded that he would not pay before delivery, saying
"You deliver it and I will have the cheque there."
Although the parties had agreed at that meeting that installation should begin on 15 December 2003 the meeting ended in a stand off as to whether or not Nature’s Own Brands Pty Ltd would pay the next instalment before delivery of the conveyor system or not. In early to mid December 2003 Mr Filidis and Mr Young again attended at the offices of Mr Wijeyewardene. Again, Mr Wijeyewardene restated that upon delivery he would pay the next payment due but not before.
On 19 December 2003 Mr Wijeyewardene sent a facsimile to Mr Filidis on behalf of Nature’s Own Brands Pty Ltd confirming that during a conversation had with Mr Filidis on 17 December 2003 Nature’s Own Brands Pty Ltd were informed that the installation of the equipment would be commencing from 19 December 2003 and would be completed within two to three days. Mr Wijeyewardene then said in that facsimile:
I am now in receipt of a fax sent to us indicating installation and commissioning to be around 19 January 2004.
And further:
In terms of our purchase intentions as described in the original offer dated 15 August 03 was that the commissioning of the system was to be around 10 November 2003. We have accommodated delays in the completion of this contract and we are now of the opinion that the project has made no headway and assumes completion at any time.
We wish to inform you, that we have decided to cancel this contract on the basis of default if the project is not installed and commissioned by the latest 31 December 03.
We have also informed you previously that we have incurred production losses due to the delay in the completion of this project which is now substantial and we intend to recover these losses from your company.
Any proposal to complete this project after 1 January 2004 would be on terms to be renegotiated, and clearly would include compensation to us for production losses that we have sustained up to that time.
Mr Filidis' evidence is that on 19 December 2003 a part of the conveyor system was delivered to the site and installation commenced. The applicant asked the respondent for money. The respondent declined to pay at the time saying that the whole of the system was not there yet. The applicant then delivered the balance of the conveyor system to the site before Christmas 2003 but did not then complete installation. The applicant attended at the premises again between Christmas and New Year after the Boxing Day holiday fitting the conveyor system and installing the conveyors. As at 31 December 2003 the only part of the conveyor system not installed was an incline conveyor which could not be installed because there was a beam not shown on the plans intruding into the position it was to occupy. Contrary to that evidence given by Mr Filidis, Mr Wijeyewardene deposed in paragraph 78 of his affidavit that his recollection was that by 31 December 2003 the applicant had not delivered any of the conveyor system equipment.
Daniel Johnson gave evidence in the proceeding, he being an employee of the metal fabricating business known as Metal Works. His evidence was that in December 2003 he supervised the installation and assembly of a conveyor system for the applicant at 41 Holloway Drive Bayswater. His evidence was that the works commenced immediately after Christmas and were completed by New Year's Eve. His evidence was that all of the conveyor assembly was delivered and installed by 31 December 2003 save the incline conveyor which led from the packing table to the pallets. It was not delivered at that time as it needed to be modified due to the presence of the steel girder or beam as referred to by Mr Filidis.
Mr Mervyn Young swore an affidavit in these proceedings on 3 April 2006. He deposed to he, Mr Filidis, and the respondent having several meetings about the type of equipment and number of machines required by the respondent. He confirmed that the respondent also wished to reduce the cost from the quote initially provided. He corroborated Mr Filidis' evidence that Mr Filidis told the respondent that the applicant would have to obtain finance before it could accept the order of the respondent on the terms as sought by the respondent, namely, that he wished to pay over a period of time. Mr Young's evidence was that the respondent had agreed that the equipment would be installed between Christmas and New Year when the factory was shut down and that the conveyor equipment had been installed by 31 December 2003, still requiring the electrician to wire it up and for it then to be commissioned. I accept the evidence of Mr Filidis, Mr Johnson and Mr Young.
Mr Young's further evidence was that he was present when Mr Filidis handed the respondent the company invoice for the second stage payment which was toward the end of December 2003. His evidence, which I accept, is that the respondent did not dispute any obligation to pay but smiled and said,
"Wait until you see my invoice."
Further, he said words to the effect,
"You get it finished and I'll pay."
Mr Filidis' evidence is that on 31 December 2003 and at the respondent's premises he provided to the respondent an invoice for the next instalment due under the agreement. He handed such invoice to the respondent seeking a total amount inclusive of GST of $39,600 and asked for the money. The respondent replied,
"I haven't got it and I'm not paying until you finish everything."
Mr Filidis replied to the respondent,
"You should have paid before delivery. In good faith we have delivered everything. If you don't pay I am going to walk."
I accept this evidence.
Mr Wijeyewardene's evidence is that on receipt of the invoice for a further payment he was concerned not just because of the delays but also because the partial installation did not appear to have been preceded by any trials of the equipment at the applicant’s premises as required under the contract. It appeared to the respondent that the applicant still had not finished the manufacture of all of the component parts of the conveyor equipment. Accordingly, on 5 January 2004, Mr Wijeyewardene forwarded a facsimile to Mr Filidis noting that no electrical work had been commenced by that day and informing the applicant in part that:
“1.     We have suffered losses of over $22,000 in production down time and lost output to date due to the delays in the completion of this contract and we continue to have lost production. We have many orders that we may fail to deliver due to the lost production, which may also jeopardise our contracts with our customers. We will be setting off these losses against any value due from us at the conclusion of the project, whenever it may be.
2.   We regard this contract in default and as indicated to you the terms of the transaction would have to be re‑established. Accordingly we do not accept you (sic) invoice delivered to us on 2 January 2004, even prior to the delivery of all equipment to our premises.
3.   We reserve the right to have the job completed by third parties, the cost of which would be to your account.”
At that point in time the applicant determined that it had manufactured a conveyor system at considerable expense using moneys which had been borrowed for the purpose. That system had been delivered to the respondent and his company and was effectively worthless to anybody else. Mr Filidis determined that the applicant's best chance of being paid was to complete the installation and trust that the respondent would honour his promises of payment in the future even though he had not in the past.
Accordingly on 7 January 2004 Mr Filidis wrote to the respondent advising him that the applicant company would proceed to do the electrical installation. In that communication Mr Filidis stated that part‑installation of the equipment had commenced and that Mr Wijeyewardene had been advised that at worst the installation would be completed by 19 January 2004 but that he was targeting for the 12 January 2004. He noted that the electrical work was to have commenced on 5 January 2004 however it was not commenced due to the fact that the appointed electrician was interstate. He noted the appointed electrician had returned and was ready, willing and able to commence work the following morning. Once the electrician had completed his work the applicant would be in a position to commence testing which Mr Filidis intended to undertake on Monday 12 January 2004. He noted that was still consistent with the assurances previously given in making sure that the work would be completed on or before 19 January 2004 if not 12 January 2004. He did not accept the allegations as raised by the respondent and concluded that in the meantime he would appreciate payment in accordance with invoice 1061 supplied.
The electrician attended at the site from 8 January 2004. He was engaged to install the electrical and pneumatic systems. He worked on site for approximately one week to 10 days. At the end of his work the system was completed and ready to be fired up, however, the completion of the system commissioning would require the installation of a carton erector that was not a piece of equipment to be supplied by the applicant but instead was to be purchased separately by Nature’s Own Brands Pty Ltd.
On 9 January 2004 the solicitor for the applicant sent a letter of demand to Nature’s Own Brands Pty Ltd. Mr Wijeyewardene's evidence was that his concerns at that time included not merely the delays but the fact that all of the component parts of the equipment had not been delivered and further that it was apparent to him that the electrical work had not been completed or perhaps had not even been started. This was despite the electrician having attended at Mr Wijeyewardene premises a fact known to the respondent on 8 January 2004. The firm of Frenkel Partners on behalf of Nature’s Own Brands Pty Ltd responded by letter dated 19 January 2004 which included the following advices:
We confirm our instructions that our client is prepared for representatives of your client to attend our client's premises to finalise the works and to commission the conveyor system.
We confirm further that finalisation of the works and commissioning of the conveyor system will be done without prejudice to our client's rights and remedies against your client in` relation to any and all claims our client has or will have against your client. We are instructed that particulars of our client's claims have previously been conveyed directly to your client.
On or about 15 March 2004 the applicant commenced proceedings in the Magistrates Court of Victoria at Melbourne to recover the second instalment which had been invoiced on 31 December 2003. On 28 April 2004 the applicant made application in the Magistrates Court for summary judgment for the amount claimed. On or about 17 May 2004 the solicitors for the applicant received a letter from the solicitors for the respondent requesting an adjournment because the respondent was overseas. The applicant agreed to the adjournment. On 26 May 2004 the respondent as sole director resolved to place Nature’s Own Brands Pty Ltd in administration. His reason for doing so was as stated by him in evidence as follows:
To get rid of threats; to get rid of problems and difficulties in the business.
And later-
I did obtain advice. I spoke with my legal counsel and I was told, ‘Well, this is all so difficult. Just close it up.’
Messrs Giuseppe Rambaldi and Andrew Yeo were appointed joint and several administrators of the company pursuant to s.436A of the Corporations Act 2001. On or about 31 May 2004, the Magistrates Court of Victoria made an order that the company Nature’s Own Brands Pty Ltd pay to the applicant the sum of $30,553.87 in relation to the second progress payment due for the supply of the equipment. Such amount remains unpaid. A meeting of creditors was held on

2 June 2004 at the offices of Pitcher Partners at 161 Collins Street Melbourne. Mr Filidis was present at that meeting as was the respondent as a director of Nature’s Own Brands Pty Ltd and as a creditor of that company.
Mr Yeo told those assembled it was his understanding that Nature’s Own Brands Pty Ltd had two arms to its business being the sale of cocoa and tea to supermarkets. He said the company had lost its contract to supply tea in November 2003 and that this arm of its business had thereupon ceased. He said that whilst the cocoa contract was still on foot it was expected to end shortly. That in fact did not occur and the cocoa contract continued throughout the administration and thereafter.
Mr Filidis asked the respondent at the meeting why if the tea business had been lost had he commissioned a tea‑packing system. Mr Wijeyewardene responded that he had hoped to contract out the capacity of the machine. Mr Wijeyewardene said he had not realised Nature’s Own Brands Pty Ltd might be insolvent until the contract was lost.
Shortly after Mr Filidis received a report to creditors dated 11 June 2004 prepared by the administrators. That report made a series of statements about the affairs of Nature’s Own Brands Pty Ltd and those of other companies of which the respondent was a director. It also detailed a proposal by the respondent and another of his companies, “Fresh to You” Food Services Pty Ltd to enter into a Deed of Company Arrangement. Statements of Mr Yeo as contained in that report included the following:
a)In or around October 2003 the company's contract to supply generic tea to Woolworths expired. The contract which was offered for re-tender was won by a related entity, “Fresh to You” Food Services Pty Ltd. No stock remained in respect of this business. Following the cessation of this part of the business all the tea‑bagging and packaging equipment was sold to a related entity.
b)The company was also developing a market for exporting hydroponically grown herbal tea. The leaves were grown at a related company's premises in Bunyip, Victoria, and sold to Nature’s Own Brands Pty Ltd following harvesting. As a result Nature’s Own Brands Pty Ltd had a large stock holding of raw, unblended herbal tea in relation to which offers were being sought for the public sale of this tea.
c)The company's failure was caused by the following factors:
i)the loss of major profitable contracts to supply tea and cocoa to large supermarket chains around July and October 2003;
ii)the company was defending numerous costly legal actions resulting from disputes with creditors. Further, I am aware of at least two additional legal actions being defended by Nature’s Own Brands Pty Ltd that were settled prior to my appointment.
iii)the loss of financial support from the company's secured creditor, “Fresh to You” Food Services Pty Ltd, which had been a significant cash resource prior to my appointment.
d)An independent valuer, Lockwood and Co Pty Ltd had conducted a valuation of the company's assets. The company's major piece of machinery was an automated tea packaging conveyor system. Investigations reveal that this machine had an initial purchase price of $180,000 including installation and commissioning. Lockwoods has advised that as the machine was purpose‑built for Nature’s Own Brands Pty Ltd in its current premises it would be difficult to realise at auction and therefore the potential to gauge an accurate valuation is somewhat limited. The director has advised that the machinery was currently not fully operational, being in the early stages of commissioning. The remainder of the plant and equipment had an estimated realisable value of $1310 at auction.
e)Although the director had advised that at book value the unblended herbal tea leaves had a value of $606,756 it required further processing and thus would be difficult to sell at auction.
In its formal proof of debt “Fresh to You” Food Services Pty Ltd claimed to be a creditor of Nature’s Own Brands Pty Ltd in the amount of $519,557.21. No substantiating documentation was provided. Unsecured creditors of the company totalled $561,320.75. Of the total amount of unsecured creditors disclosed by the director $216,992 appeared to be in respect of related‑party creditors.

“Fresh to You” Food Services Pty Ltd had the first ranking fixed and floating charge over the company’s assets and undertakings. That charge was created on 20 December 1996 in favour of the National Australia Bank. It was registered on 2 January 1997 and assigned to “Fresh to You” Food Services Pty Ltd on 7 January 2004. The National Australia Bank facility was paid out. It stood at $363,465.26.
A preliminary view was formed that a payment to Consolidated Commodities Corporation Pty Ltd may have constituted an unfair preference in favour of Consolidated Commodities Corporation Pty Ltd in the amount of $73,800. This company was another in the group under the control of the respondent. It had operated a childcare centre in Bayswater before becoming dormant.
As part of the administration process Mr Wijeyewardene proposed a Deed of Company Arrangement. Creditors voted on that proposed deed of Company Arrangement. The applicant's representatives attended the meeting of creditors and voted in relation to that proposed Arrangement. The report dated 11 June 2004 was tabled at the meeting by the administrator, Mr Yeo. Mr Yeo, at the meeting, expressed his opinion that the company may have been insolvent in June 2003 when it lost its cocoa contract but it may not have become so until November 2003 when it lost its tea contract as well. He advised the majority of debts incurred after June 2003 were to “Fresh to You” Food Services Pty Ltd and the applicant.
The administrator explained to the meeting that “Fresh to You” Food Services Pty Ltd had paid $365,000 to the National Australia Bank and had taken an assignment of that bank's charge over Nature’s Own Brands Pty Ltd and was consequently the first ranking secured creditor.
The Deed of Company Arrangement was approved and entered into. It was proposed by the respondent, seconded by the respondent's solicitors and passed on the votes of the respondent, “Fresh to You” Food Services Pty Ltd, the respondent's family, the Holloway Drive Unit Trust which is the respondent's family's unit trust, Consolidated Commodities Corporation Pty Ltd, one of the respondent's companies, the respondent's solicitors and accountants and two independent creditors. The applicant and two other creditors owed in total $269,204 voted against the motion. Pursuant to the Deed of Company Arrangement those parts of the conveyor system which had been delivered by the applicant and those which had in addition been installed were acquired by “Fresh to You” Food Services Pty Ltd. The main provision of the Deed of Company Arrangement as it affected unsecured creditors was that the director, the respondent in these proceedings, was required to pay $80,000 to the Deed administrator in three instalments. After allowing for the administrator's remuneration and out of pocket expenses those moneys it was proposed would then be distributed to unsecured creditors with the final instalment being due to be made by 29 January 2005.
The terms of the Deed of Company Arrangement enabled the respondent to pay a total sum of $80,000 whereafter he resumed the control and management of Nature’s Own Brands Pty Ltd. All of the debtors of the company were transferred to its related company, “Fresh to You” Food Services Pty Ltd, and all of the assets of the company including the equipment for which payment had not been made was purchased by “Fresh to You” Food Services Pty Ltd for a nominal amount of $100,000 which consideration was by way of a reduction of the debt allegedly owed by the company to “Fresh to You” Food Services Pty Ltd. By reason of the company's entry into that Deed, “Fresh to You” Food Services Pty Ltd acquired the equipment and all the other assets of the company without making any further payment.
Prior to the appointment of the administrators “Fresh to You” Food Services Pty Ltd commenced attempts to find out whether the conveyor system which had been supplied could be made operational. Thereafter, the respondent's view was that “Fresh to You” Food Services Pty Ltd had acquired for good consideration under the deed of arrangement the partial components of the Con-Pac conveyor system. Accordingly the respondent thought he would endeavour to get that partial system at least operational and possibly with further additions near enough to providing full automation.
In approximately March 2004, the respondent commissioned an electrical expert to check the conveyor system, in particular the programmed logic control system, to see whether it was capable of working. “Fresh to You” Food Services Pty Ltd arranged for and funded the costs of the electrical expert.
The outcome of that engagement was that the respondent formed the view that it was readily apparent to him that the conveyor system was not in a position to be trialled or commissioned due to the control box not containing any PLCs which were necessary for the system to operate. Subsequently, and after entering into the Deed of Company Arrangement, “Fresh to You” Food Services Pty Ltd again commissioned the electrical expert in an endeavour to make the delivered parts of the conveyor system operational. The respondent's evidence is that to the present date the conveyors have never been operational or been able to be used by Nature’s Own Brands Pty Ltd or “Fresh to You” Food Services Pty Ltd. I reject that evidence. The respondent told Mr Hampton as set out in the bank manager’s diary note of 13 July 2004 and confirmed by Mr Hampton in evidence the following:
The new equipment is now up and operating with additional costs of some $20,000 incurred by him in commissioning. He has been successful in winning the former supply contracts for desiccated coconut formerly held by Nature’s Own Brands Pty Ltd in the name of “Food To You” Food Services Pty Ltd and tea products are now rolling out at a faster rate than initially projected by the supermarkets.”
As a consequence of the Deed of Company Arrangement “Fresh to You” Food Services Pty Ltd reverted to undertaking all of the tea operations from importation, packaging, warehousing, distribution, marketing and sales. Nature’s Own Brands Pty Ltd activities since the administration have continued to be solely in relation to cocoa products.
During the period from December 2003 until May 2004, and on the respondent's evidence, “Fresh to You” Food Services Pty Ltd provided funds for Nature’s Own Brands Pty Ltd in respect of ongoing operations including Nature’s Own Brands Pty Ltd purchases of cocoa.

Consideration

The applicant made application pursuant to ss.82 and 87 of the Trade Practices Act 1974 (Cth) and s.159 of the Fair Trading Act 1999 (Victoria) arising from the same facts. The applicant sought that the respondent pay to the applicant damages and interest on the damages as compensation for loss and damage sustained by it as a consequence of misrepresentations made by the respondent and his alleged involvement in breaches of the said Acts as referred to in the grounds as set out in the statement of claim as amended. The applicant alleged that the representations made as set out in paragraphs 7, 8 and 9 of the statement of claim were made by the company Nature’s Own Brands Pty Ltd in trade or commerce within the meaning of s.52 of the Trade Practices Act 1974 and s.9 of the Fair Trading Act 1999 (Victoria) and by the respondent in trade or commerce within the meaning of s.9 of the Fair Trading Act 1999. Further or alternatively the respondent was a person involved in the contravention by the company of s.52 of the Trade Practices Act 1974 (Cth) and s.9 of the Fair Trading Act 1999 (Victoria) within the meaning of those statutes. Insofar as the representations related to future matters the applicant relied upon the presumptions contained in section 51A of the Trade Practices Act 1974 and section 4 of the Fair Trading Act 1999 (Victoria). Further the applicant alleged the conduct of the company in ordering and taking delivery of goods for which it could not and did not intend to pay and avoiding liability for them was unconscionable in all the circumstances. Further, the conduct of the respondent in arranging and giving effect to the unconscionable conduct was itself conduct in trade or commerce which was unconscionable contrary to s.7 of the Fair Trading Act 1999 (Victoria). The applicant alleged the company engaged in the unconscionable conduct in the course of trade or commerce in breach of s.51AC of the Trade Practice Act and s.7 of the Fair Trading Act. Further it was alleged the respondent was a person involved in the company’s contravention of s.51AC within the meaning of s.75B of the Trade Practices Act and section 7 within the meaning of s.159 of the Fair Trading Act 1999 (Victoria).
In constructing the conveyor system the applicant incurred liabilities in the sum of $185,341.87. The applicant continues to meet interest repayments on the monies remaining owing by it.
The applicant claimed that in reliance upon the representations made by the respondent and the company Nature’s Own Brands Pty Ltd as set out in the amended statement of claim the applicant manufactured equipment and supplied and installed it at the premises of the company of which the respondent was a director at 41 Holloway Drive, Bayswater.
The respondent stated that the company, Nature’s Own Brands Pty Ltd and the applicant entered into a contract in respect of the supply, installation and commissioning of a conveyor system. At the time of entering into that contract, Nature’s Own Brands Pty Ltd intended to pay for the equipment in accordance with the terms of the contract; had the capacity to pay for the equipment and/or had reasonable grounds for believing that it had such capacity. The respondent further argued that had the applicant's conveyor system been commissioned and become operational then progress payments payable under the contract would have been met from Nature’s Own Brands Pty Ltd business.
In circumstances where a purchaser orders goods for an agreed price, there is an implicit representation that the purchaser presently intends to pay for them. There is also an accepted promise that it will pay for them which can constitute a representation that it will in future pay for them. There may also be in certain cases a representation that the purchaser has the capacity to pay for the equipment. In Futuretronics International Pty Ltd v Gadzhis (1992) 2 VR 217 at 238 Ormiston J said:
It is wrong to view every contractual obligation as an unqualified promise to perform the stipulated act. Indeed it is rare that a contractual promise is not in some way qualified by some reciprocal obligation to be performed by the promisee or by some other circumstance. If the promise induced the other party to enter into the agreement as one can readily accept it would, then it is that promise and the circumstances then surrounding it which must be examined. The promise can only be said to be misleading or deceptive if it was in some way inaccurate; otherwise every unfulfilled mutual contractual promise will constitute misleading or deceptive conduct, a consequence which I cannot believe those who drafted the Act intended. If intention be relevant, the promise may be misleading if the promisor had no intention to fulfil it at the time it was made and accepted. If intention be irrelevant, then the promise may be misleading if the promisor had no ability to perform it at that time.
And at 239,
It would seem on the authorities that, at the least, a contractual promise would amount to an implied representation that the promisor then had an intention to carry out that promise. If it can be shown that he had no such intention, he would be guilty of misleading or deceptive conduct. Likewise it would seem that such a representation connotes a present ability to fulfil that promise which, if shown to be untrue at the time of making, would likewise characterize the implied representation as misleading or deceptive.
And at 240,
the promisee is not… bound to show that the promisor had no intention or no ability to perform the promise at the time of its making. The promisor will be deemed not to have reasonable grounds for making the representation or promise, unless he satisfies the court by evidence to the contrary that he had reasonable grounds for making that representation.
The court is satisfied the applicant made known to the respondent that he would need to borrow money in order to be able to manufacture and acquire the necessary equipment and supply it to the respondent's company Nature’s Own Brands Pty Ltd. The respondent sought terms as to payment from the applicant so that the company could pay for this machinery in a manner advantageous to it. Implicit in making the order for the equipment was a representation that on those terms Nature’s Own Brands Pty Ltd had the capacity to pay for the equipment. The ordering of the equipment implicitly represented that the respondent intended that the company should pay for the equipment, that the company had the capacity to pay for the equipment and that the company would in the future pay for the equipment.
All the respondent's dealings with the applicant were conducted whilst the respondent was representing Nature’s Own Brands Pty Ltd. The conduct was engaged in on behalf of that company and constitutes conduct by that company. It also constitutes conduct of the respondent himself (Miba Pty Ltd vNescor Industries Group Pty Ltd (1996) 141 ALR 525). The respondent is a person whom the applicant is entitled to recover damages against pursuant to s.82(1) of the Trade Practices Act 1974 (Cth). The respondent was clearly acting in trade or commerce in ordering the goods and making the representations given the nature of his role in Nature’s Own Brands Pty Ltd and the related companies in the group.
Nature’s Own Brands Pty Ltd did not pay for the machinery, save for the payment of a deposit. In those circumstances s.51A of the Trade Practices Act 1974 (Cth) and s.4 of the Fair Trading Act 1999 (Victoria) deem the representation to be misleading and deceptive unless it is proved that there were reasonable grounds for making the representation.
The respondent's evidence was that at the time of accepting the revised quotation from the applicant he considered that Nature’s Own Brands Pty Ltd had the capacity to pay for the equipment at the times when payment fell due. In particular, Nature’s Own Brands Pty Ltd then had, and continues to have a contract for the supply of cocoa to Coles. Further, he believed that “Fresh to You” Food Services Pty Ltd either had secured or had a good chance of securing the contract for the supply of generic tea to Coles. With that contract in place Nature’s Own Brands Pty Ltd would have packaged the tea for “Fresh to You” Food Services Pty Ltd and charged “Fresh to You” Food Services Pty Ltd a fee in respect of the packaging and warehousing of that Coles generic tea. Even if the contract had not been secured Nature’s Own Brands Pty Ltd nevertheless would have continued to package for “Fresh to You” Food Services Pty Ltd including the Australian Tea House specialty brands.
Nature’s Own Brands Pty Ltd's financial accounts for the years ended 30 June 2002 and 2003 indicated that the company was trading at a substantial loss (operating losses of $25,052 and $142,649) respectively and had acquired a deficit of assets over liabilities and such deficit was increasing significantly into the 2004 year. There is no reasonable ground to be found within the accounts to suggest that Nature’s Own Brands Pty Ltd could in any way pay for the equipment which it was acquiring. Although the respondent asserted that the major suppliers of Nature’s Own Brands Pty Ltd included various supermarkets who were regular and reliable payers, it was clear that the generic tea contracts which Nature’s Own Brands Pty Ltd had previously held and which constituted the overwhelming majority of its income were intended by the respondent from June 2003 to end. As they fell due for renewal they were to be taken over by “Fresh to You” Food Services Pty Ltd. It is clear from the management accounts that the current liabilities of the company as at 30 September 2003 amounted to more than $230,000 and the overdraft liability to the bank amounted to a further $202,423.
The respondent asserted that in September 2003 Natures Own Brands Pty had immediate cash resources available to it including through the National Australia Bank with which it had a facility limit to $360,000. However, the evidence establishes that the overdraft was near its maximum at the time and it was the explicit intention of the respondent that the account should come to an end because the company was to cease trading and “Fresh to You” Food Services Pty Ltd was to take over the borrowings. The respondent led no evidence to suggest there were reasonable grounds for a representation that Nature’s Own Brands Pty Ltd could make the payments required by the contract into which it was entering at the time at which it did. The court accepts it had no such capacity and that it was the intention of the respondent that it should not have any such capacity. Nature’s Own Brands Pty Ltd made a representation, it being made by the respondent, that it would pay for the conveyor system. Section 51A of the Trade Practices Act 1974 (Cth) and s.4 of the Fair Trading Act 1999 (Victoria) operates to deem that conduct misleading or deceptive.
I am satisfied that the tangible assets of the company had been transferred to Consolidated Commodities Corporation Pty Ltd by

30 June 2003 and that it was intended by the respondent that any third‑party income producing contracts with the exception of those relating to cocoa and in relation to which no documentary evidence was produced by the respondent, should all cease to be held by Nature’s Own Brands Pty Ltd and instead be held by “Fresh to You” Food Services Pty Ltd.
I accept counsel for the applicant's submission that the respondent as director of the various companies within his family group caused those companies to take a series of steps, the effect of which was to make possible the final step of Nature’s Own Brands Pty Ltd being placed into administration and a Deed of Company Arrangement proposed and passed which had the effect of “Fresh to You” Food Services Pty Ltd acquiring all of the remaining assets of Nature’s Own Brands Pty Ltd. I accept the submissions based on the evidence that those steps were as follows:
a)During the course of the 2003 financial year Nature’s Own Brands Pty Ltd incurred debts in the order of $130,000 to Consolidated Commodities Corporation Pty Ltd. I note the evidence of the respondent in this regard which provided no plausible explanation as to the reason for this debt and his claim that it accumulated over the years which was clearly inaccurate;
b)on or about 30 June 2003 Nature’s Own Brands Pty Ltd transferred all of its plant and equipment to Consolidated Commodities Corporation Pty Ltd;
c)in August 2003 Nature’s Own Brands Pty Ltd negotiated for and ordered a piece of equipment costing $180,000 plus GST;
d)from June 2003 Nature’s Own Brands Pty Ltd ceased to seek renewal of tea‑supply contracts and instead “Fresh to You” Food Services Pty Ltd began obtaining them;
e)Nature’s Own Brands Pty Ltd ceased to trade in any substantial way save the existing cocoa contracts and “Fresh to You” Food Services Pty Ltd took over the principal trading operations of the group;
f)between November 2003 and January 2004 “Fresh to You” Food Services Pty Ltd acquired new overdraft and other credit facilities from the ANZ Bank and used them to pay out the existing indebtedness of Nature’s Own Brands Pty Ltd to the National Australia Bank;
g)in January 2004 “Fresh to You” Food Services Pty Ltd took an assignment of the first‑registered debenture charge over the assets and undertaking of Nature’s Own Brands Pty Ltd;
h)
the court in addition refers to the evidence wherein on the

27th day of April, 2004 Nature’s Own Brands Pty Ltd as transferor transferred to Wijeyewardene Pty Ltd all of its right, title and interest in the property known as and situate at 41 Holloway Drive, Bayswater in the State of Victoria and being more particularly described in Certificate of Title Volume 9055, folio 636;
i)“Fresh to You” Food Services Pty Ltd sought finance to allow it to acquire and it did acquire tea‑packing equipment from abroad;
j)“Fresh to You” Food Services Pty Ltd acquired a carton erector in its own name;
k)Nature’s Own Brands Pty Ltd was placed into administration and a Deed of Company Arrangement proposed and passed which had the effect of all the remaining assets and undertaking of Nature’s Own Brand Pty Ltd being acquired by “Fresh to You” Food Services Pty Ltd.

The inference from the taking of these steps is that the purpose of such actions was to achieve the natural and ordinary consequence of same, namely to allow Nature’s Own Brands Pty Ltd to acquire equipment without having to pay for it and to avoid its debts. The respondent’s conduct throughout was to attempt to get the conveyor system installed in his premises without making payment beyond the deposit.
Immediately after the assignment by the respondent of the assets of Nature’s Own Brands Pty Ltd to Consolidated Commodities Corporation Pty Ltd the respondent began negotiating on behalf of Nature’s Own Brands Pty Ltd to acquire a further piece of equipment which would only operate with the equipment just transferred to Consolidated Commodities Corporation Pty Ltd. The respondent suggested that the reason for such transfer was probably the business card or stationery he had with him at the time; that explanation is not plausible. Despite the respondent's evidence that he was attempting to establish some structure within the group the acquisition of equipment as described above and which included the acquisition of a carton erecter by “Fresh to You Food” Services Pty Ltd appeared to be influenced more by the question of whether the financiers of those equipment was a secured creditor or not. The alterations in the respondent's evidence as to the reason for equipment to be held by any particular company in his group result in the court being unable to accept the evidence of the respondent in his uncorroborated assertions as to his intentions within the group. He was not a witness, in this regard, on whose evidence the court could rely.
The court infers that the reason the transfer of the tea contracts from Nature’s Own Brands Pty Ltd to “Fresh to You” Food Services Pty Ltd occurred was to protect them in the event that Nature’s Own Brands Pty Ltd was placed in administration. Once that purpose had been served there was no longer any reason for Nature’s Own Brands Pty Ltd to not revert to the functions it had previously.
There is no credible basis upon which the respondent could have believed that Nature’s Own Brands Pty Ltd would be able to pay for the equipment which it ordered from the applicant. At the time the equipment was ordered the respondent had already decided that Nature’s Own Brands Pty Ltd would cease to trade on its own account in relation to its principal sources of income. The respondent set the rate at which Nature’s Own Brands Pty Ltd should be paid by “Fresh to You” Food Services Pty Ltd for the services it provided. It is plain Nature’s Own Brands Pty Ltd could not realize a profit at the rate at which it was being paid because it went on to post an operating loss of some $76,000 for the 2004 financial year. Nature’s Own Brands Pty Ltd had no assets from which it could make any payment and those that it did have were to become the subject of a registered debenture charge in favour of “Fresh to You” Food Services Pty Ltd. Trading profit and loss statement for “Fresh to You” Food Services Pty Ltd for the 2004 year show that it only made an operating profit of $1957 for the year and had a deficiency in shareholder funds. Whether or not Nature’s Own Brands Pty Ltd was technically insolvent the evidence is such that there were no reasonable grounds for believing that it would be able to pay for the equipment which it had ordered.
The court is satisfied that Nature’s Own Brands Pty Ltd at the time of entering into the Agreement in August 2003 did not have any intention that it would necessarily pay for the equipment it was ordering. The respondent elected not to obtain monies by way of advance from the bank to fund the purchase - monies which would have been available to him on the evidence of Mr Hampton. It was quite prepared to take action as it subsequently did to avoid liability to the applicant.
The respondent is the sole officer of each of the companies in his group and for the purposes of knowledge of any misleading nature of conduct and intention they and he are essentially the same. The court is satisfied the respondent had knowledge of the factual matters constituting the contravention by Nature’s Own Brands Pty Ltd of s.52 of the Trade Practices Act and s.9 of the Fair Trading Act.
The court is satisfied that the respondent unconscionably used the legal rights which he possessed by virtue of the provisions of the Corporations Act 2001 in putting Nature’s Own Brands Pty Ltd into administration and acquiring its assets back in order to avoid the applicant's just claim for payment. The respondent's conduct was directed to obtaining possession of the equipment without making any payment beyond the deposit. Having obtained that possession the respondent then took steps to acquire title without payment through the administration procedure. He admits this. He was placed in a position of special advantage over the applicant by virtue of the fact that he controlled a group of companies between which he could and did shuffle assets. The applicant had no knowledge or way of knowing the actions being initiated and carried out by the respondent amongst the companies he controlled. It had no way of knowing what was being put in place within the group or that it would leave it with no enforceable rights and which placed it at the mercy of the respondent's choice whether it should be paid. This exercise of legal rights in such manner by the respondent was unconscionable. I accept and adopt the submissions of counsel in this regard.
French J in ACCC v CG Berbatis Holdings Pty Ltd (2000) FCA 2 at paragraph 15 described such conduct as follows:-
Australian case law has been concerned about unconscionable conduct within the framework of specific doctrines identifying particular classes of conduct albeit their boundaries tend to be blurred by the generality of the notion of unconscionability in equitable doctrine. One such class of conduct is the unconscientious exploitation by one person of the serious disadvantage of another to secure the disposition of property or the assumption of contractual or other obligations by the weaker party. The kind of disadvantage which will attract equity’s intervention in such cases may have many faces. Their variety is so great that they elude satisfactory classification – Blomley v Ryan (1956) 99 CLR 362 at 405 (Fullagar J). A distinction has been drawn between unconscionable dealing in this context and undue influence on the basis that the former looks to the conduct of the stronger party in attempting to enforce or retain the benefit of a dealing while the latter looks to the quality of consent or assent of the weaker party – Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 474 (Deane J). it is, however, only a small step to classify both under the rubric of unconscionable conduct. Mason J, at 461, referred to the historic jurisdiction of the court to set aside contracts an other dealings on a variety of equitable grounds including fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct, saying:
“In one sense they all constitute species of unconscionable conduct on the part of a party who stands to receive all benefit under a transaction which, in the eye of equity, cannot be enforced because to do so would be inconsistent with equity and good conscience. But relief on the ground of “unconscionable conduct” is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage…”.
Under ss.82 and 87 of the Trade Practices Act1974 (Cth) and s.159 of the Fair Trading Act 1999 (Victoria) the applicant is entitled to recover the amount of any loss or damage sustained by virtue of the contravention of those Acts. The applicant has sustained substantial losses by virtue of its entry into and performance of the agreement with Nature’s Own Brands Pty Ltd. Those losses were not the subject of any meaningful challenge by the respondent. The court is satisfied those losses have been sustained by virtue of the respondent's breaches and participation in the breaches of Nature’s Own Brands Pty Ltd of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1999 (Victoria). Those losses total $165,541.80 together with further interest paid since July 2005 at $463.75 per calendar month or other amount to be quantified by the applicant.
Finally, the court refers to the further amended defence, paragraph 34 thereof which is as follows:
Further, and in the alternative, if the conduct referred to in paragraph 7 of the amended statement of claim constituted a representation by the respondent as alleged in subparaph (7)(b) which is denied then such representation was not in writing and signed by the respondent and by reason of section 128 of the Instruments Act 1958, the applicant's claim against the respondent upon or by reason thereof was not actionable.
Section 128 of the Instruments Act 1958 (Victoria) is as follows:
Representations of Character
No action shall be brought whereby to charge any person upon or by reason of any representation or assurance made or given concerning or relating to the character, conduct, credit, ability, trade or dealings of any other person to the intent or purpose that such other person may obtain credit, money or goods thereupon, unless such representation or assurance is made in writing signed by the party to be charged therewith.
This argument of the respondent fails. The provisions of the Trade Practices Act 1974 (Cth) are inconsistent with the State provisions (s.109 of the Constitution) and the section has no relevance in these proceedings. The later in time 1999 State Act deals also with statutory breaches concerning conduct and is not limited by the earlier legislation.
The respondent should pay to the applicant damages in the sum of $165,541.80 together with interest as claimed on the borrowings together with interest to be fixed by the court pursuant to s.76(3) [and noting s.76(4)] of the Federal Magistrates Court Act 1999. I note the court would be inclined to order the same rate of pre-judgment interest as that in the Federal Court. The applicant will also be entitled to interest on the judgment in accordance with s.77 of the Federal Magistrates Court Act 1999 and Rule 26.01 of the Federal Magistrates Court Rules2001. That rule applies the rate of interest prescribed by the Federal Court Rules. I propose to hear the parties as to the precise formulation of the order including the award of interest sums and I propose an order as to costs such that inn default of agreement the respondent pay the costs of the applicant of the proceedings including reserved costs pursuant to Part 21 Rule 21.02(c) and such costs be taxed pursuant to O.62 of the Federal Court Rules.

I certify that the preceding eighty-seven (87) paragraphs are a true copy of the reasons for judgment of Hartnett FM.

Associate: Tracey Jones

Date: 1 August 2006