Frontline Hobbies Pty Limited v Peter Loveday
[2009] NSWDC 87
•14 May 2009
NEW SOUTH WALES DISTRICT COURT
CITATION:
Frontline Hobbies Pty Limited v Peter Loveday [2009] NSWDC 87
FILE NUMBER(S):
HEARING DATE(S):
4/5/09 - 7/5/09
JUDGMENT DATE:
14 May 2009
PARTIES:
Frontline Hobbies Pty Limited (Plaintiff)
Peter Loveday (Defendant)
JUDGMENT OF:
Rolfe DCJ
COUNSEL:
J Sleight (Plaintiff)
J Wilcsek (Defendant)
SOLICITORS:
CATCHWORDS:
Contract for the Supply of Computer Software and Technology Services
Claim against Director of Company for being knowingly and directly concerned in misleading and deceptive conduct
Consideration of alleged misrepresentations
Assessment of damages
LEGISLATION CITED:
Trade Practices Act 1974 (Cth)
Civil Procedure Act 2000
CASES CITED:
TEXTS CITED:
DECISION:
See paragraphs 48-51 of Judgment
JUDGMENT:
JUDGMENT
The plaintiff claims damages under s 82 (1) of the Trade Practices Act 1974 (Cth) (the “TPA”) on the basis that the first defendant, Peter Loveday, was directly and knowingly concerned with and was party to misleading conduct within the terms of s 75B TPA. The misleading conduct is said to be in breach of s 52 TPA and arose from alleged representations made by Mr Loveday on behalf of the second defendant, Loveday Corporation Australia Pty Limited (the “Company”). Proceedings have been discontinued against that Company because it is in liquidation.
The plaintiff is a large retailer of specialised hobby goods. It operates from premises in Newcastle and has wholesale and retail divisions. It imports, distributes and sells hobby goods such as radio controlled cars, model kits, model railways and so on. A reasonable proportion of its business is done using its website.
The Company provided computer software products and services for small to medium businesses specialising in the importing, distribution and retailing of goods.
Colin Scott is the managing director of the plaintiff. In his evidence, exhibit B, he said that he conducted internet research for a new point of sale system and formed the view that companies operating under the trade names “Pronto” and “EPOS” were his best options. In that respect, Mr Scott obtained the quotation from Pronto at tab 1 of exhibit B. After doing so, he contacted the Company and spoke to Mr Loveday. Mr Loveday told him that the Company was licensed by EPOS to supply RunIt software in Australia. A meeting between the two was arranged at the plaintiff’s premises in Newcastle in early November 2006. At that meeting Mr Scott told Mr Loveday that the plaintiff required a software package which would integrate the whole of its business structure. Mr Scott told Mr Loveday he needed information to flow efficiently every step of the way and that the system the business had been using, known as Capital, was old. Mr Scott told Mr Loveday that the plaintiff badly needed to update its software to bring together all facets of its day to day business including purchasing, ordering, general ledger, retail operations, wholesale operations and web maintenance. For example, the plaintiff required a fully integrated ledger and accounts payable with automatic purchasing. Importantly, Mr Scott told Mr Loveday that the business required the integration of the plaintiff’s database with its website as well as a detailed reporting mechanism.
Mr Scott said he showed Mr Loveday a copy of a quote he had received from Pronto for $44,000.
Mr Scott told Mr Loveday that he thought the Pronto quote was overpriced and that as long as Mr Loveday could provide the RunIt software including all of the functions in the Pronto quote, then Mr Scott would consider using the Company’s software.
In response Mr Loveday told Mr Scott he could provide the software and the system that the plaintiff required using RunIt for under $20,000. He told Mr Scott that the RunIt system would increase the plaintiff’s profits and productivity. Although Mr Scott said that specific percentages were mentioned to him by Mr Loveday, I accept Mr Scott’s evidence that he was very circumspect about these figures because Mr Loveday did not know the plaintiff’s financial details. In this respect only, the plaintiff conceded that paragraph 6 of the Statement of Claim was not therefore pressed.
Mr Loveday also told Mr Scott that he had many years experience in the retail and wholesale business area, understood dilemmas faced by businesses such as that of the plaintiff and assured Mr Scott that the RunIt software was tried and proven and that he could look after the plaintiff’s hardware, software and email requirements.
Following this meeting, Mr Loveday sent Mr Scott the Company’s brochure entitle “Software and IT Business Solutions for Import Distribution and Retail” (tab 2 of exhibit B). The brochure contains the following:
“Executive Summary
(a) Epos Software Solutions have been supplying Software training and IT Solutions to Importers, Distributors and retailers since 1997 where our main objective is to Create systems (software), hardware and IT services for businesses with the purpose of increasing profitability and improving stock efficiency …”
(b) E-Commerce, today has many applications and is growing at the rate of knots so if you don’t start soon your competition will take your market share …
(c) In summary we provide IT products and services for small to medium businesses that specialize in import, distribution and retail and our goal is to assist you in improving.
Objective
(d) Ensuring with any new installation that there are no short term lack of sales while setting up the new system, planning and overcoming predictive learning curves for the owner of the business and their staff (Mr Loveday conceded that this objective was “misleading”)
Business Description
(e) Our organization is a solutions Provider targeting distribution, wholesale, manufacturing and retail companies. We supply a total solution of software systems and hardware to those industries.
Handling of Data collected by the Software
(f) Data can be imported and exported to and from the software with few restrictions, ask for details.”
Mr Scott’s evidence was that after he read the Company’s brochure he concluded that its software was suitable for retailers, importers and distributors, i.e. businesses such as that of the plaintiff. Mr Scott had also looked at the website of EPOS from which the RunIt software had emanated and noted that the software was designed for use in wholesale, importing and distributing businesses.
About two weeks later, Mr Loveday returned to the plaintiff’s office and said he needed to conduct a full audit of the plaintiff’s hardware to establish whether it would be suitable for the RunIt software. He said he had a disk that he would insert into each computer to record relative data on capacity and suitability.
Having conducted this audit, Mr Loveday told Mr Scott and his daughter, Candice May, who also worked in the plaintiff’s business, that they only needed to replace three point of sale computers, that all their other computers were fine and were compatible with the Company’s software.
Once again, Mr Scott showed Mr Loveday the Pronto quote and asked Mr Loveday why the Company should be preferred over Pronto. Mr Loveday’s response was that, first, RunIt could do everything outlined in the Pronto quote and, secondly, with the RunIt system, the plaintiff would receive the complete package. All hardware and software would be supplied by the Company.
The next day Mr Loveday provided the quote at tab 3 of exhibit B. On this occasion there was a discussion between Mr Scott and Mr Loveday in which Mr Scott informed Mr Loveday in no uncertain terms that the continued smooth flow of the retail website was of paramount importance in the conduct of the plaintiff’s operations. Mr Scott told Mr Loveday it was critical that information be made available to update the plaintiff’s website on a daily basis as was then happening under the Capital software. Mr Scott asked Mr Loveday how the mechanics of the operation would continue to work efficiently if the RunIt software was installed and was told by Mr Loveday that there was not a problem “… all we do is reverse the data out of RunIt back into Capital and allow the website to retrieve daily information from Capital. I will just need to write a program, simple stuff” (exhibit B para 16). Mr Scott reiterated that it was important that Mr Loveday understand the significance of the plaintiff’s website in the context of the plaintiff’s operations.
Following this discussion, after emails passed between Mr Scott and Mr Loveday, on 4 January 2007 the plaintiff accepted the Company’s quote. Mr Scott told Mr Loveday that the system was to go live on 19 February 2007. In response, Mr Loveday asked for payment up front in the full amount of the quote and this was done.
Shortly after this discussion, Mr Scott asked Mr Loveday when the wholesale software could be loaded, at which point Mr Loveday asserted that the RunIt software had not been recommended for the plaintiff’s wholesale operations. Mr Scott quickly corrected him and told Mr Loveday that the plaintiff had entered into the contract with the Company because Mr Loveday had told him the RunIt software would work well for both retail and wholesale operations and he had understood this from the brochure as well.
The “go live” date of 19 February 2007 was postponed to meet Mr Loveday’s convenience. Also, Mr Loveday identified a problem with the plaintiff’s server even though nothing had changed in the plaintiff’s operation between November 2006 and February 2007 after Mr Loveday had completed his audit of the plaintiff’s system. This created further delays.
When the system went live on 5 March 2007, the server had not been installed and the plaintiff had to use one of its other computers as a temporary measure with the result that the system crashed regularly and created chaos at the business.
In April 2007 the plaintiff, through Mr Scott and Mrs May, began to realise that there were problems with the website because the data from RunIt software package was not being successfully imported into the website, notwithstanding Mr Loveday’s representations that this would be achieved if his Company’s quotation was accepted. Mr Loveday sought to assure Mr Scott that he could fix the problem. The matter only got worse; for example, customers started to complain about their inability to access the website; and the website did not update data such as the precise amount of stock held in the business and so on.
Thereafter, the situation deteriorated further as the evidence of Mr Scott and Mrs May demonstrates. Although, as one of his proposed solutions to the plaintiff’s problems, Mr Loveday agreed to build a new website for the plaintiff, this was a failure. The upshot was that the plaintiff eventually contracted with others to have the website fixed up and it entered into a contract with Pronto for a new software package to suit its needs.
The evidence of Mrs May corroborated that of Mr Scott. It is not necessary to set it out in detail.
Importantly, Mrs May was present at the second meeting between Mr Scott and Mr Loveday in late November 2006 when Mr Loveday conducted his audit. At this time Mrs May told Mr Loveday she would require the RunIt software package to ensure there would be automatic purchasing, tight stock control and tight cash control; as well, it was essential it be integrated with EFTPOS and with the plaintiff’s website. Double entry had to be cut out. Mr Loveday assured Mrs May that this could be done.
In the plaintiff’s claim against Mr Loveday, the plaintiff’s requirements expressed to Mr Loveday are set out in paragraph 4 of the Statement of Claim and the representations relied on are set out in paragraphs 5 and 7.
I am comfortably satisfied on the evidence that Mr Scott, in particular, as well as Mrs May, made it clear to Mr Loveday that the most important characteristics of the new software package and services it required from the Company were that, first, there be a full integration including the importing of data between the retail and wholesale operations and secondly, that the plaintiff’s website be integrated with its databases.
My assessment of Mr Scott was that he was an honest and truthful witness. His account of what occurred between him and Mr Loveday was not challenged in cross-examination by counsel for Mr Loveday. I accept Mr Scott’s evidence.
Mrs May gave her evidence in a very straightforward, easy manner and was a truthful witness. Her version of events was not challenged either. I accept her evidence.
I take a different view of the evidence of Mr Loveday. Mr Loveday was an unsatisfactory witness who was evasive in his answers to the cross-examiner, sought to argue with him and had a tendency to give both unresponsive answers and make speeches. In my assessment, Mr Loveday was prepared to say whatever was required in order to defeat the plaintiff’s claim. On the essential matters in dispute between the parties, therefore, I do not accept his evidence.
Mr Loveday did not dispute that Mr Scott and Mrs May made it clear they required RunIt to be used in the wholesale operation of the business. However, Mr Loveday asserted that he told Mr Scott he did not recommend this before the plaintiff accepted the Company’s quote. I am satisfied, based on Mr Scott’s evidence and the other matters I have referred to, that in fact this statement was only made by Mr Loveday after the contract was entered into between the plaintiff and the Company. Mr Scott’s evidence in this regard was not challenged. Moreover, Mr Loveday conceded in cross-examination that Mr Scott had told him he required software solutions that integrated the retail and wholesale businesses and that he had told Mr Scott he was very experienced in retail and wholesale businesses. Mr Loveday also conceded that he told Mr Scott that the RunIt software was tried and proven and that he had personal involvement in retail businesses of the type that the plaintiff conducted. He also agreed he had told Mr Scott that he had the ability to look after all the plaintiff’s hardware and email requirements.
After being pressed about the contents of the brochure which he gave to Mr Scott, Mr Loveday conceded that it gave the impression that the RunIt software applied for wholesale operations. The fact of the matter was that Mr Loveday had not read the brochure for some time and had a very cavalier approach, in giving evidence, about what the contents of the brochure were.
In relation to the website integration, Mr Loveday’s case was that it was not his job. In the witness box he said that a synchronisation program was required between the RunIt software and the website and he sought to assert that he had never been asked to perform this function. However, this was not something Mr Loveday drew to the attention of the plaintiff through Mr Scott or Mrs May at any material time. In my assessment, Mr Loveday gave this evidence in order to avoid any liability to the plaintiff. Mr Loveday also sought to avoid any knowledge of the Pronto quote. In my assessment, this was because he knew it created problems for his case. I am comfortably satisfied that he was shown the quote by Mr Scott and was well aware of its contents. When shown the quote in the witness box Mr Loveday agreed that the reference to “distribution” put him on notice that the quote covered software in respect of wholesale operations.
Mr Loveday did not dispute that when he first met Mr Scott the plaintiff was using the Capital software system for both its retail and wholesale operations and the plaintiff’s website was updated by imported data from the Capital system every 24 hours. The general ledger and accounts payable operated using MYOB software. In this respect I am satisfied on the evidence of Mr Scott and Mrs May that, up until they entered into the contract with the Company, they only experienced minor problems in the plaintiff’s operations of its software. The plaintiff simply wanted to update its system and make it more efficient. Further, I accept the submission made by the plaintiff’s counsel that it is consistent with such a state of affairs that any new software required by the plaintiff would have to enhance the performance of its business. I am satisfied that the plaintiff, through Mr Scott and Mrs May, made clear to Mr Loveday, prior to the plaintiff accepting the Company’s quote, that any new software linked with the website must do so in a manner which was at least as efficient as the status quo. I am also satisfied that Mr Loveday was well aware that Mr Scott required integration between the retail and wholesale operations so that, for example, stock only had to be entered once and could be transferred between the two operations without the need for additional entries. Again Mr Loveday, when pressed in cross-examination, conceded that his Company’s website, which contained the logo “RunIt Solutions”, was part of the template for every page of the website and this was consistent with there being full integration between the wholesale and retail arms of a business.
Mr Loveday’s email of 12 December 2006 (tab 1, exhibit C) demonstrates an awareness on his part that he was required to ensure that the plaintiff’s website could be updated from the RunIt software and that he was of the opinion that this would not be a problem and could be accommodated after the plaintiff accepted the Company’s quote and before the go live date. In this respect the plaintiff accepted all of Mr Loveday’s recommendations, such as the deferral of the go live date from 25 February 2007 until 5 March 2007, the need to get either a new server or a replacement and the acquisition of new hardware, all of which are indicative of a relationship in which Mr Loveday’s Company was installing for the plaintiff an integrated software system which the plaintiff would be relying on in terms of its proper functioning.
In terms of Mr Loveday’s continued assertion that the website problem was not his responsibility, this is contrary to what is contained in the email dated 12 December 2006 and is not something Mr Loveday ever raised with the plaintiff after Mr Scott and Mrs May complained to him about the failure of the website to update data after the go live date.
As mentioned, the plaintiff was unable to go live on 5 March 2007 because of the inadequate performance of its hardware. Mr Loveday had represented that his company would ensure that the plaintiff’s hardware would be adequate as at the time of the go live date, but he did not ensure this occurred. He agreed that he had not warned Mr Scott or Mrs May of a possible deterioration of the disk space on the server between the assessment and go live date and he made no assessment of the situation before the go live date.
In the circumstances I am satisfied that the plaintiff has made out its case on the pleaded representations made by Mr Loveday. But for these representations, I am satisfied the plaintiff would not have entered into the contract with the Company. Instead, I am satisfied the plaintiff would have purchased the Pronto software.
On the question of damages, I accept the evidence of Mr Scott and Mrs May that the Pronto software purchased by the plaintiff is performing as expected and updating the plaintiff’s website. The plaintiff’s case is put on the basis that its damages should be assessed as the expenditure and loss of profits incurred as a consequence of going ahead with the contract between the plaintiff and the Company instead of entering into a contract with Pronto in December 2006/January 2007.
The plaintiff’s claim for damages is set out in the document at tab 41 of exhibit C.
The defendant did not object to the plaintiff proving its loss by way of the summary of each of the quotations and various other items set out in the document. For example, the plaintiff did not need to tender EPOS quote 10047 as the summary of it was not challenged by the defendant.
With regard to the plaintiff’s out of pocket expenditure, I am satisfied that the plaintiff is entitled to recover, as part of its damages, the amounts paid to the defendant as follows:
EPOS quote 11009 Invoice 10108 $27,387.80
EPOS quote 10047 Invoice 10161 36,462.20
__________
Total $63,850.00
In terms of the EPOS website, the plaintiff is entitled to recover $10,965.90, being monies paid to the Company and included in the Company’s invoice 10047. I have awarded this amount to the plaintiff and rejected its claim for costs incurred in salvaging its website as I am not satisfied there is sufficient evidence to support the various components making up the amount paid to Redback Solutions over and above an amount of $10,965.90.
The plaintiff claims $39,156.00 in costs for rectifying the general ledger. In this respect, I accept the evidence given by Mrs May in paragraphs 72 and 73 of exhibit C. On the basis of that evidence and in respect of this item, I award the plaintiff $13,250.00 as follows:
Quick Books $ 1,200.00
Price Waterhouse Coopers 10,550.00
Bookkeeper provided by Price Waterhouse Coopers 1,500.00
____________
Total $13,250.00
I have rejected the balance of the plaintiff’s claim of $39,156.00 because I am not satisfied that, on the evidence given by Mrs May, the plaintiff has discharged the onus.
The plaintiff claims a loss of profits of $165,321.96. I award the plaintiff $33,800.00 on the following basis.
The plaintiff’s claim is referred to in Mrs May’s evidence in paragraphs 69-71 of exhibit C. The plaintiff’s claim has been calculated with reference to the spreadsheet at tab 36 of exhibit C. In this regard I am not satisfied that the evidence establishes that the plaintiff would have achieved a 15% growth in sales. In addition, it seems to me that by 31 December 2007 the plaintiff ought to have mitigated its loss. Accordingly, I approach the matter as follows:
Loss gross profit calculated by the plaintiff
for the period 1 March 2007 – 1 March 2008 $80,458.81
Proportion of gross profit attributable to the
Period 1 March 2007 – 1 December 2007 (75%) 60,344.10
In respect of gross profit, counsel for the plaintiff conceded that an allowance ought be made for variable costs such as telephone, electricity etc. He submitted a 5% deduction ought be made. In my opinion, this is too low. Doing the best I can, a deduction of 20% ought be made and I arrive at a figure of $48,275.28.
Counsel for the plaintiff also conceded an allowance for tax at the company rate of 30% should be made. This should be deducted from the figure of $48,275.28 and the result is an award of damages for loss of profits in the amount of $33,800.00 (round figures).
The plaintiff does not press its claims for “general costs” and “fees”.
In the result there will be a Verdict for the Plaintiff in the amount of $121,865.90.
The plaintiff is entitled to interest in accordance with the provisions of s 100 of Civil Procedure Act 2000. I will stand the matter down so the parties can do the calculations.
Costs on the ordinary basis should follow the event, but I will hear the parties if either of them wishes to make a submission to the contrary.
I direct that the exhibits be returned.
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LAST UPDATED:
14 May 2009
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