Harvey Fresh (1994) Ltd v Devenish - [2001] WADC 87

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: HARVEY FRESH (1994) LTD -v- DEVENISH & ANOR [2001] WADC 87

CORAM: COMMISSIONER REYNOLDS

HEARD: 22 MARCH 2001

DELIVERED : 5 APRIL 2001

FILE NO/S: CIV 2593 of 1998

BETWEEN: HARVEY FRESH (1994) LTD
Plaintiff
AND
ROBERT DARCY CONROY DEVENISH
First Defendant
JEANETTE DEVENISH
Second Defendant

Catchwords:

Debt - Liquidated amount - Outstanding balance on account for supply of products - Distributorship Agreement - Misleading and deceptive conduct - Whether discounts given on cost prices as agreed

Legislation:

Supreme Court Act 1935

Result:

Judgment in favour of the plaintiff in the sum of $71,887.96
Defendants' counterclaim dismissed

Representation:

Counsel:

Plaintiff:     Mr B de Lestang
First Defendant             :     In person
Second Defendant         :     In person

Solicitors:

Plaintiff:     Benjamin & de Lestang
First Defendant             :     In person
Second Defendant         :     In person

Case(s) referred to in judgment(s):

Nil

Case(s) also cited:

Henjo Investments Pty Ltd & Ors v Collins Marrickville Pty Ltd (No 1) (1988) 79 ALR 83
Kizbeau Pty Ltd & Ors v WG & B Pty Ltd & Anor (1995) ATPR 41-439
Pappas & Anor v Soulac Pty Ltd & Anor (1983) ATPR 40-411
Rohne-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477

COMMISSIONER REYNOLDS:

Introduction

The plaintiff is a manufacturer and wholesale supplier of fruit juice and dairy products. At all material times the first defendant and the second defendant traded as R & J Devenish and distributed fruit juice and dairy products supplied to them by the plaintiff.
The plaintiff claims that the first defendant and the second defendant owe it $71,887.96 for goods sold and delivered by the plaintiff to them trading as R & J Devenish during the period 26 March 1998 to 24 June 1998 inclusive. The defendants admit that they traded as R & J Devenish and distributed fruit juice and milk products supplied to them by the plaintiff but deny that the amount claimed by the plaintiff is due and owing by them to the plaintiff. The defendants have made a counterclaim against the plaintiff alleging that they entered into their distributorship agreement with the plaintiff in reliance on representations made by an agent of the plaintiff which were misleading or deceptive. They claim that they have suffered loss and damage and have been put to expense as a result of relying on representations made on behalf of the plaintiff. The defendants also allege that the plaintiff has breached a term of the distributorship agreement entered into by and between the parties in that the plaintiff has failed and/or refused to provide the defendants with an 18 per cent discount on amounts shown on invoices prepared by the plaintiff and debited to the defendants' account. The defendants allege that they have suffered loss and damage in the sum of $45,592.98 as a consequence of the plaintiff's breach of the distributorship agreement. Further, by way of defence to the plaintiff's claim, the defendants seek to set off so much of the amount of their counterclaim as may extinguish their liability to the plaintiff.

The Evidence

Anthony Scolaro ("Mr Scolaro") is an accountant and the managing director of the plaintiff. He gave evidence that the head office of the plaintiff is at his office premises in West Perth where four people are employed to handle the plaintiff's accounts. Mr Scolaro oversees the plaintiff's accounts and in particular monitors cash flows from week to week.
Kevin Sorgiovanni ("Mr Sorgiovanni") is the plaintiff's marketing manager. In 1986 he and his brother set up the business which is now operated by the plaintiff. His office is located in Harvey where the plaintiff also has its factory premises.
Robert Musitano ("Mr Musitano") is the office manager at the plaintiff's office in Harvey. He oversees accounts administration at the Harvey office. Orders for the plaintiff's products are entered onto a computer programme at the Harvey office which generates an invoice and a packing slip which are forwarded to the plaintiff's dispatch department. The products are then delivered to the distributor in Perth. When the products are delivered the distributor is given the original invoice and is required to sign the duplicate of the invoice. The signed duplicate invoice is returned to the plaintiff's office in Harvey.
The first defendant gave evidence that he and the second defendant, his wife, both left paid employment to commence their own business which included distributing products manufactured by the plaintiff. Before doing so neither of them had been a business proprietor. On 10 February 1996 the defendants entered into a written agreement with one Mr Weaver to acquire Mr Weaver's business as a distributor for the plaintiff in a specified area known as "Area 3" which included Midland and parts of the foothills of Perth. The defendants paid $45,000 for Mr Weaver's business which included a truck with chiller box and refrigeration.
Settlement of the defendants' purchase of Mr Weaver's business took place on 11 March 1996 at the plaintiff's Perth office in the presence of Mr Scolaro. On that date the defendants by the first defendant entered into a fresh distribution licence with the plaintiff ("the distributorship agreement"). The distributorship agreement was in identical terms to the distributorship granted by the plaintiff to Mr Weaver save and except for the deletion of a condition that the licensor pay the sum of $5,000 to Harvey Fresh on selling or transferring the licence to someone else. Thereafter the defendants distributed the plaintiff's products in "Area 3" until June 1998 when they notified the plaintiff that they considered the distributorship agreement to be at an end.
Mr Scolaro gave evidence that in October 1996 he was advised about the state of the defendants' account with the plaintiff. He said that it was more than $60,000 in arrears. He visited the defendants at their home in Serpentine on 21 December 1996 to discuss the situation. He gave evidence that he asked the defendants what they did with the cash they received from their customers when they sold the plaintiff's goods and did not account to the plaintiff. He said that the first defendant responded to this question by pointing to a shed (which contained a cool room) and saying that they had to buy a forklift. Mr Scolaro said that during this visit when the state of the defendants' account was discussed the defendants did not deny that they owed the plaintiff the outstanding amount shown on their account. At this meeting Mr Scolaro handed the defendants a letter dated 20 December 1996 that he had prepared the day before setting out various procedures the plaintiff required the defendants to follow in relation to the receipt of goods and payments to the plaintiff. Suffice to say that these procedures required the defendants to complete a distributor's weekly return and were designed to ensure that at the end of a week the defendants paid the plaintiff an amount of money which at least covered the cost of the defendants' purchases for that week.
On 24 February 1997 Mr Scolaro telephoned the first defendant. Mr Scolaro gave evidence that during this telephone call he said to the first defendant: "On 21 December 1996 you owed us $66,000 and today you owe us $72,000. Unless you bring your account below $66,000 you are not to buy any more goods from Harvey Fresh." Mr Scolaro added that the first defendant said that the amount of $72,000 was incorrect because it did not take account of credits which should have been made to the defendants' account. Mr Scolaro said that he told the first defendant to take that matter up with Mr Musitano but their account should not exceed $66,000.
On 30 April 1997 Mr Scolaro wrote to the defendants stating that they owed $73,727.21 as at 27 April 1997 and noted that this exceeded the amount as at 20 December 1996 of $66,468.35. He sought some security from the defendants to secure the balance of their account and advised that the plaintiff would not extend any further credit to them. On 21 May 1997 Mr Scolaro again wrote to the defendants setting out that as at 15 May 1997 their account had reduced to $64,553.72 after receipt of a cheque for $7,776.11 to cover their purchases for the previous week. He sought an agreement from the defendants that they would pay the balance of the account failing which he would instruct solicitors to commence proceedings for recovery.
Mr Scolaro had another meeting with the defendants on 31 May 1997. He said that the purpose of the meeting was to find out about the defendants' financial circumstances and whether or not they could pay their account in a manner that was mutually acceptable. He said that the first defendant promised to pay within 30 days. He also said that he told the defendants that if a mutually acceptable arrangement could not be agreed then the plaintiff might terminate their licence.
Mr Scolaro followed up this meeting by writing to the defendants on 3 June 1997. He set out the following proposal to settle the defendants' outstanding account. The outstanding balance would be secured by the registration of a third mortgage over the defendants' residence. The credit limit available to the defendants be $65,000. The limit would reduce at the rate of $1,000 per calendar month. No products would be delivered by the plaintiff to the defendants if it would result in the limit being exceeded. Mr Scolaro noted in the letter that the first defendant had said on 31 May 1997 that he was raising a further $30,000 and would pay it to the plaintiff to reduce the outstanding balance of the defendants' account to about $35,000. Mr Scolaro stated in the letter that the plaintiff had no objection to this but still wanted to proceed with its proposed arrangements. Mr Scolaro further stated in the letter that (1) the plaintiff would pay half the mortgage costs and no interest would be payable on the outstanding amount secured by the mortgage; (2) in the meantime the defendants were to settle future purchases from the plaintiff on a weekly basis; and (3) if either party terminated the arrangement then the total outstanding balance at the time would become due and payable.
On 16 June 1997 the defendants wrote to Mr Scolaro. They stated that their before tax profit for the previous 15 months was only about 2 per cent of sales and added that it was caused by "discounts not received on invoices as agreed". They requested that "a revision be jointly carried out of the current agreement and should take effect from 1 July 1997". They also indicated that when the first defendant previously worked as a purchasing officer in a business in Karratha no supplier gave a discount less than 22.5 per cent on their own manufactured product. Mr Scolaro responded by letter dated 20 June 1997 stating inter alia that it was not possible for the plaintiff to increase margins already provided in the distributorship agreement between the parties for "Area 3" because of fierce competition in the marketplace for the products manufactured by the plaintiff. He also noted in the letter that the defendants' account was $70,956.93 in debit.
On 23 June 1997 the defendants advised Mr Scolaro by facsimile that they would not grant the plaintiff a third mortgage over their residence to secure their account. The defendants also stated that they "have not ever received the full discounts agreed to in the licence despite numerous attempts to get it rectified after having contacted yourself and other representatives of Harvey Fresh many times".
Mr Sorgiovanni gave evidence that the plaintiff's accounts for the defendants were maintained at the plaintiff's Harvey Office and were the responsibility of Mr Musitano. Mr Sorgiovanni said that in January or February 1996 he received a telephone call from the first defendant or Mr Weaver and arranged an appointment to see them in about the first week of March 1996. He said that the meeting took place in Harvey. He also said that at this meeting he discussed the plaintiff's whole product range with the first defendant and gave the first defendant a product brochure and a distributor's price list for the plaintiff's products. He said that he told the first defendant that the white milk discount margin was different to the fruit juice margin. He also gave evidence that he told the first defendant that the discount for white milk was less than 18 per cent.
A copy of the distributor's price list dated 22 July 1996 is in evidence as Exhibit 13(a). Mr Sorgiovanni said that the copy of the distributor's price list he gave to the first defendant in the first week of March 1996 and current at that time was set out in the same form as Exhibit 13(a). It shows the unit list price and recommended retail price for the plaintiff's own large customers such as retail supermarkets. It also separately shows the distributor's actual unit cost price and the unit list price for fruit juices, white milk and other dairy products manufactured by the plaintiff. The actual unit cost price to the distributor is less than the plaintiff's unit list price for each product. The distributor's discount for each product can be easily calculated in dollar terms by subtracting the distributor's actual unit cost price from the plaintiff's unit list price. The distributor's discount in percentage terms can be easily calculated by dividing the difference between the plaintiff's unit list price and the distributor's actual unit cost price by the plaintiff's unit list price and multiplying by 100. Carrying out these calculations using Exhibit 13(a) shows that the distributor's discount on white milk and the other dairy products is less than 18 per cent.
Mr Sorgiovanni gave evidence that the distributor's price list he gave to the first defendant in March 1996 definitely would have had white milk on it as well as the plaintiff's other products because the plaintiff started to manufacture white milk in January 1996.
Mr Sorgiovanni gave evidence that at this meeting Mr Weaver told him that he was selling his business to Mr Devenish (the first defendant). Mr Sorgiovanni said that at the time he was quite comfortable about the first defendant buying Mr Weaver's business. He also said that the first defendant told him that he wanted to build the business up and particularly the white milk side of it. Mr Sorgiovanni said that he warned the first defendant "You should be a little bit wary of the white milk side because it's an extremely competitive industry and really to look at the business on its merits".
Mr Sorgiovanni gave evidence that after this meeting in March 1996 the plaintiff began to regularly supply the defendants with stock. He said that when prices changed the plaintiff would send out a new distributor's price list to all distributors. He also said that he spoke to the first defendant about once every week. The plaintiff kept supplying the defendants with stock even though their account was in debit. Mr Sorgiovanni said that when the account went beyond about $60,000 he brought it to the attention of Mr Scolaro.
On 1 February 1997 Mr Sorgiovanni received a facsimile from the defendants requesting further credits and stating "Please note from now on I will be claiming everything for products which I do not get 18% discounts". On 6 February 1997 Mr Sorgiovanni forwarded a response by facsimile to the first defendant advising the first defendant that when he entered into his business the plaintiff offered an 18 per cent discount on fruit juices and the distributor's cost for dairy and agency was "Per the distributor's cost price list for you to wholesale accordingly (copy enclosed)". The first defendant responded by facsimile to Mr Sorgiovanni on 9 February 1997 in which he indicated that he had never seen a copy of a distributor's price list before and also inter alia: "When I entered into business with Harvey Fresh I was told that milk discounts were different not less. Even after several calls to you and Tony I did not actually find out what it was until I started buying it. Later on a figure of 14% was mentioned to me but this never happened."
Mr Sorgiovanni gave evidence that on one occasion when he spoke with the first defendant he asked the first defendant to at least pay for what stock he had bought the week before. He added that on this occasion the first defendant said "Okay, send a rep around" and so he arranged for a representative to go to the defendants' residence to collect payment but the representative was turned away without being given any money.
The first defendant put to Mr Sorgiovanni in cross‑examination that the plaintiff stopped supporting the defendants. Mr Sorgiovanni rejected this suggestion and said that the plaintiff gave $1,000 to $2,000 worth of stock free of charge to the defendants in the first three to four weeks of their distributorship and further free stock a couple of weeks before the defendants terminated the distributorship agreement. He said that there had been an occasion when he told the first defendant that the plaintiff would not supply him with stock the next day but indicated that was because of the high amount outstanding on the defendants' account and that the defendants' had not made a payment as previously arranged.
Mr Musitano gave evidence by reference to accounting records of the plaintiff that as at 24 June 1998 the total outstanding balance of the defendants' account was $71,887.96. He said that this amount remains outstanding in full. The statement of the defendants' account, Account No 167, records all of the numbers of the invoices issued to the defendants for stock supplied by the plaintiff to the defendants and the debits on such invoices together with credits made to the account for the period 26 March 1998 to 24 June 1998 inclusive.
Mr Sorgiovanni gave evidence about the defendants' initial account being frozen and a new account being opened. It can be seen from a perusal of Exhibit 22 which is headed "Account Reconciliation ‑ both Accounts 162 and 167" and shows debits and payments made by the defendants to the plaintiff between 11 March 1996 and 24 June 1998 that as at 26 March 1998 the defendants' initial account with the plaintiff, Account No 162, was frozen with an outstanding balance of $66,452.30 and only $933.80 was carried forward as a debit and is the first entry on the defendants' new account, namely Account No 167.
On and after 26 March 1998 and until 24 June 1998 the defendants continued to make payments to the plaintiff. After 26 March 1998 all payments made by the defendants were allocated to reduce the balance on the frozen account, Account No 162. By 24 June 1998 the outstanding balance on the frozen Account No 162 of $66,452.30 had been paid in full but Account No 167 had gone from a debit balance of $933.80 on 26 March 1998 to a debit balance of $71,887.96 by 24 June 1998. The defendants had continued to receive stock from the plaintiff after 26 March 1998 on a regular basis.
By reference to Exhibit 22 the plaintiff received cheques from the defendants between 26 March 1998 and 24 June 1998 in the total sum of $65,518.50. When the sum of $933.80, the starting debit balance on Account No 167, is added to the sum of $65,518.50 the resultant figure is $66,452.30 which reconciles with the final balance outstanding on Account No 162 which had been frozen.
Duplicates of all of the invoices issued by the plaintiff to the defendants during the period 26 March 1998 to 24 June 1998 are in evidence as Exhibit 19. All of the duplicate invoices carry a signature of one of the defendants to show that goods have been received but in all instances there is a notation under the signature which reads: "Not checked." The net amount payable on each invoice has been debited to the defendants' new account, Account No 167, save for an adjustment from $,1,005.85 to $933.80 for the first entry. The various duplicate invoices show that the defendants purchased various types of fruit juices, white milk and other dairy products for distribution between 26 March 1998 and 24 June 1998.

Exhibit 22 shows that at the end of the first month that the defendants operated the distributorship their account was $9,834.92 in debit. By the end of the second month it was $18,368.41 in debit. At the end of the third month it was $29,586.87 in debit. At the end of the fourth month it was $30,942.17 in debit. At the end of the fifth month it was $43,170.82 in debit. At the end of the sixth month it was $52,248.47 in debit. At the end of the seventh month it was $55,852.67 in debit. On 11 November 1996 at the end of the eighth month it was $60,063.44 in debit.
The second defendant was present at the hearing. She did not give any evidence. While both defendants were proprietors of the distributorship business it seems that most if not all communication between Mr Weaver and the defendants and the plaintiff and the defendants were conducted by the first defendant for and on behalf of both defendants. The first defendant gave evidence at the hearing. I will refer to some of his evidence now and other parts in more detail later when I deal with the defendants' set‑off and counterclaim.
The first defendant gave evidence that the defendants only entered into the distributorship agreement with the plaintiff on the basis that they would receive an 18 per cent discount on the metro wholesale price of the entire range of the plaintiff's products which included all types of fruit juices, white milk and all other dairy products. He said that 18 per cent was to be their profit margin. He said that nobody told him that there was less than 18 per cent discount on anything. He indicated that the newspaper advertisement for the sale of Mr Weaver's business referred to 18 per cent on all products. It is important to mention that I have not seen a copy of the newspaper advertisement. It is not open on the evidence for me to conclude on balance who actually caused the advertisement to be published in the newspaper. The defendants have not pleaded that they or either of them relied on anything in the advertisement in purchasing Mr Weaver's business and entering into the distributorship agreement. At the hearing the defendants never suggested that the plaintiff caused the advertisement to be published or was responsible for the substance of it. Mr Weaver may well have been responsible for the advertisement.
The first defendant gave evidence that after he read the advertisement he contacted Mr Sorgiovanni of the plaintiff. He said that he actually met Mr Sorgiovanni before both he and Mr Weaver met Mr Sorgiovanni in March 1996. Even if this is so I am not satisfied that anything material was said by either of the first defendant and Mr Sorgiovanni at any such meeting. On 31 January 1996 Mr Sorgiovanni wrote to the first defendant noting that he had expressed interest in acquiring a distribution round from Mr Weaver. The first defendant gave evidence that this letter was generated after he had telephoned Mr Sorgiovanni and said that he needed something from the plaintiff to go with the defendants' application for finance to purchase Mr Weaver's business. In such letter Mr Sorgiovanni indicated that Mr Weaver's turnover had increased to $20,000 per month and that there was potential for Mr Weaver's customer base to be increased.
The first defendant gave evidence that the defendants entered into a written agreement with Mr Weaver to purchase Mr Weaver's business on 10 February 1996. This agreement was subject to the plaintiff approving the defendants to replace Mr Weaver to distribute its products.
The first defendant said that the invoices he received from the plaintiff showed the discount for fruit juices but not for milk and all other dairy products. This was indeed the case. He also said that the first time he was given a distributor's price list was not until July 1996. The first defendant said that he believed that the price for milk and all other dairy products as shown on the invoices was the gross price and that the plaintiff at some future time would credit the defendants with an amount equivalent to 18 per cent of the prices on the invoices.
The first defendant gave evidence that a distributor's price list came out in July 1996 after the plaintiff introduced white milk to its range of products. He said that after he received this distributor's price list he checked the price on the list with the price on the invoice and noticed that "there was a difference in price but there wasn't what was supposed to be applied as per the agreement". He agreed that he noticed that the price on the invoice was less than the price on the distributor's price list.
In cross‑examination the first defendant was asked and said:
"I suppose an obvious question is: if the amounts got up to 60 to 70 thousand dollars, that's a relatively high figure. You have spoken about how can you have a cash flow for a business when there's not a discount of 18 per cent given on the invoiced amount for milk, but how could it be, given that we're only talking about 18 per cent, that you allowed the amount to get up to 60 to 70 thousand dollars?---We didn't actually allow it. It was just that we couldn't do any better than that. It wasn't designed to happen. You know, we didn't - - -
So where was that - that money wasn't going to Harvey Fresh, so where was that going to?---It was money in part that was owed to us to start with. There was also money outstanding from our accounts and things that get tied up in cash flow."
In cross‑examination the first defendant was also asked and said:
"Just going back to another point now, if you believed that you hadn't been paid a substantial amount for the discount on milk or discounts - you hadn't been credited what you should have been credited with - why did you pay funds to get the account from 60‑odd thousand back down to I think a low of 49,000?---At the time we could. We didn't like having anything outstanding. We thought if we could do the right thing and get it all settled down as best we could, it would all come out in the wash. After all, everything was supposed to be mutual understanding between all of us."
The first defendant also gave evidence that he did not promise Mr Scolaro that the defendants would reduce the balance of their account by $30,000 but said "I'll see if I can borrow $30,000 to get it down". In my view there is no meaningful distinction to be made between the two versions. The first defendant gave important evidence that he only offered $30,000 because the defendants had not been given the appropriate discounts.
Mr Musitano produced from the plaintiff's computer records a collation of every item of fruit juice, milk and all other dairy products purchased by the defendants from the plaintiff and as shown on all of the invoices issued between March 1996 and June 1998. Alongside every product item is the price and the percentage discount given to the defendants by the plaintiff. It shows that 18 per cent was given for all types of fruit juices. The percentage discount for milk and all other dairy products varied but was generally less than 18 per cent and in the case of white milk at least was always less than 18 per cent.
At the hearing the defendants did not take any issue with the plaintiff's case that every item set out in this collation was actually purchased and received by them from the plaintiff. All of the plaintiff's invoices show unit quantity, unit description, unit price, unit warehouse discount and net amount payable in relation to all types of fruit juices. The net amount payable is the resultant figure after the unit quantity multiplied by the unit price is reduced by the warehouse discount. In relation to white milk and all other dairy products the invoices show a unit quantity, unit description, unit price and net amount payable. The net amount payable is the result of the unit quantity multiplied by the unit price.
I have already mentioned that the first defendant gave evidence that the defendants believed that the price shown for milk and all other dairy products on the invoices was the gross price to which a discount of 18 per cent should be applied. Mr Musitano gave evidence that the unit price shown on the invoices for milk and all other dairy products was actually the discounted price and not the gross price. In other words the unit price on the invoice for a particular item was less than the distributor's price shown on the distributor's price list by the amount equivalent to the distributor's discount for that particular item.
Mr Sorgiovanni gave evidence to which I have earlier referred that the defendants by the first defendant would have known this to have been the case from what he told the first defendant in March 1996 and by comparing the distributor's price list with the details on the invoice. Mr Musitano gave evidence that if the defendants had a distributor's price list they would have seen that the price for milk and all other dairy products on the invoice was the discounted price.
If the plaintiff did not engage in any misleading and deceptive conduct towards the defendants or either of them in relation to the discounts it would give to the defendants on milk and all other types of dairy products and/or the defendants did not enter into the distributorship agreement with the plaintiff in reliance on any such conduct then I would have no hesitation in finding that the outstanding balance on the defendants' account with the plaintiff for their purchases of stock from the plaintiff is $71,887.96 and that this amount has been due and owing in full by the defendants to the plaintiff since late June 1998. I therefore turn to consider allegations made by the defendants against the plaintiff of misleading and deceptive conduct.
Paragraphs 6 to 10 inclusive of the defendants' counterclaim provide as follows:
"6.By a written agreement dated 11 March 1996 ('Agreement') between the Plaintiff as licensor and the Defendants as distributor, the Plaintiff granted to the Defendants a licence to sell and distribute its products and stocks within an area known as Area 3 marked on a map attached to the Agreement ('Business').
7.The following were express written terms of the Agreement:
(a)the Plaintiff agreed to deliver and invoice the Defendants with all goods supplied and the Defendants were to check and satisfy themselves as to the correctness of the invoices in every respect including quantity and quality of the goods; and
(b)the Plaintiff agreed that the price at which it would supply its products and stocks to the Defendants would be discounted by the following amounts:
(i)3% of the value of the Plaintiffs invoices in consideration of credits claimed by customers of the Defendants for damaged stocks, faulty bottles, out of date codes, etc.
(ii)a further 15% of the value of the Plaintiffs invoices by way of a profit margin.
8.In March 1996, prior to the execution of the Agreement, the Plaintiff by its agent, Kevin Sorgiovanni, expressly represented to the Defendants that:
(a)the figures shown in a monthly sales report for the business prepared by the Plaintiff were correct and sales for $159,126.99 were achieved by the business from 29 June 1995 to 12 March 1996;
(b)the Plaintiff would receive a gross profit of 18% on all products including milk and dairy products supplied by the Plaintiff.
9.The representations referred to in paragraph 9 were misleading or deceptive in that:
(a)the figures shown in the sales report were overstated by 20% and sales for the period from 29 May 1995 to 12 March 1996 were in fact $133,061.00;
(b)milk and dairy products were supplied at a substantially lower discount than the agreed 18%.
10.The Defendant relied on the representations in:
(a)entering into an agreement to purchase the distribution business with Earl Weaver on 10 February 1996;
(b)entering into a loan agreement for $45,000.00 with Challenge Bank to fund the purchase of the business;
(c)executing the Agreement and paying $5,000.00 to the Plaintiff for the licence;
(d)purchasing a cool room, shed, forklift, office equipment and trolleys for the Business at a cost of $16,750.00."
In an affidavit sworn by the first defendant on 1 September 1998 he stated that on or about 7 March 1996 when he met Mr Sorgiovanni at the plaintiff's factory in Harvey, Mr Sorgiovanni provided him with a document which showed the monthly sales of Mr Weaver's business distributing the plaintiff's products in the eastern suburbs of Perth, which I have described as "Area 3". The first defendant attached to his affidavit what he described as a true copy of the sales record provided to him by Mr Sorgiovanni. The copy document attached is headed "Harvey Fresh". Under that heading is the first defendant's name and address and under that are two further headings, first, "Metro Distributor Area 3" and secondly, "Monthly Sales Comparison". The monthly sales figures cover the period May 1995 to June 1997 inclusive. There is handwriting on the bottom of the page which sets out inter alia "Earl $159,126.99; 29 May 1995 - 12 March 1996 ‑ $133,061".
There is no evidence on who made the written notations on the document. However the key point to be made about this copy document is that clearly it or some other copy of it could not have been given by Mr Sorgiovanni to the first defendant in March 1996 because the copy document purports to carry actual monthly sales figures beyond March 1996 and to June 1997 inclusive.
When questioned about this at the hearing the first defendant said that he did not intend to create the impression that the copy document attached to his affidavit was a true copy of the actual document or copy document that he alleges Mr Sorgiovanni gave to him. He said that he intended the copy document attached to his affidavit to be understood as an example of the type of document he received from Mr Sorgiovanni. I do not accept this explanation. The first defendant clearly indicated in his affidavit that the copy document attached to his affidavit was "a true copy". He made this clear statement in the context of an allegation by the defendants of a representation amounting to misleading and deceptive conduct.
Mr Sorgiovanni gave evidence which I accept that he did not at any time give the first defendant a document identical to the copy document attached to the first defendant's affidavit. Further, Mr Sorgiovanni pointed out and I accept that while the plaintiff knew the invoiced cost of all of the products it supplied to Mr Weaver it was not privy to Mr Weaver's monthly revenue and so it could not and did not make any representation in relation to it to the first defendant.
The first defendant stated inter alia in par 6 of his affidavit:
"In the course of negotiations with Mr Weaver, on about 7 March 1996, I visited the plaintiff's factory and met with Mr Kevin Sorgiovanni on behalf of the plaintiff. Mr Kevin Sorgiovanni showed me the plaintiff's dairy operations and explained to me that flavoured milks were currently being produced by the plaintiff and that the plaintiff intended to re‑introduce production and supply of white milk in the next 6 months. …"
The first defendant gave evidence that the plaintiff was not producing white milk at the time that he and Mr Weaver met with Mr Sorgiovanni on or about 7 March 1996. In cross‑examination the first defendant was asked about the difference between the level of discount for fruit juices on the one hand and white milk and all other dairy products on the other and said:
"Mr Devenish, if you knew the discounts were different they could have been greater or lesser?---They could have been, yes. Why should I assume they were less? I have black and white ‑ somebody signed something written in black and white saying I'm getting 18 per cent. Why should I assume it should be less?
But you knew they were different?---Yes.
You knew they were different at the time you purchased this business from Mr Earl Weaver?---I was told they were different. I didn't know for sure they were different. When I asked Mr Scolaro he said, 'Everything you need to know is in the agreement.
You knew they were different?---I was told they were different. I didn't know for a fact.
I'm putting to you that you knew as a fact that they were different?---I will say, as I have just said, on the invoices that were made out to Earl there seemed to be differences. I was told that there was a difference by him. I was not told it was less. When I asked the question I was not told by the manager of the company that it was less or that I should expect less.
Are you saying to me you did not know they were different? I put to you precisely that wording?---I didn't know for a fact, no, because there was no white milk in production at the time. Earl wasn't buying any, no. I didn't know that white milk was completely different, no. I will give you that I had an assumption or some sort of knowledge that there would be a difference but, specifically, I didn't know and when I asked the question I was told 18 per cent. So that's the best I can do, I'm sorry."
Mr Sorgiovanni gave evidence that the plaintiff commenced production and supply of white milk at the beginning of January 1996. In cross‑examination the first defendant was shown the duplicate invoice issued to him on 13 March 1996 which shows that the plaintiff supplied the defendants with white milk on or about that date. In response to this the first defendant said that it must have been "test" milk. I have no hesitation in preferring and accepting the evidence of Mr Sorgiovanni to that of the first defendant on this point.
In the very first week that the defendants started to receive and distribute the plaintiff's products they were supplied with white milk and other dairy products including flavoured milk. I find that Mr Sorgiovanni did give the first defendant a copy of the distributor's price list in March 1996 and that it showed the plaintiff's list price and the distributor's discounted cost price for all of the plaintiff's products. The plaintiff's invoices showed a discount for fruit juices but none for white milk and all other dairy products. A comparison of the then current distributor's price list and the invoice would have readily shown that the cost for white milk and all other dairy products provided on the invoice was the distributor's discounted cost price.
The allegation by the defendants in par 8(b) of their defence and counterclaim that Mr Sorgiovanni represented that the defendants would receive an 18 per cent discount on all of the plaintiff's products including milk and all other dairy products is simply untrue. I prefer and accept the evidence of Mr Sorgiovanni to that of the first defendant on this point. Further, the evidence of the first defendant set out in passages on the transcript to which I have just referred does not support par 8(b) of the defendants' defence and counterclaim. Further again, in a facsimile sent by the first defendant to Mr Sorgiovanni on 9 February 1997 the first defendant stated inter alia:
"When I entered into business with Harvey Fresh I was told that milk discounts were different not less. Even after several calls to yourself and Tony I did not actually find out what it was until I started buying it. Later on a figure of 14 per cent was mentioned to me but this never happened."
It seems to me that it would have been a good idea for the plaintiff to have actually set out the gross price, discount and net price figures for white milk and all other dairy products on its invoices as it did for fruit juices. However I find that although it did not do so the defendants by the first defendant were well aware when they entered into the distributorship agreement that the 18 per cent discount only applied to fruit juices.

I have no doubt at all that when Mr Scolaro read the distributorship agreement to the first defendant on 11 March 1996 and in particular the clause relating to 18 per cent (15 per cent plus 3 per cent) discount off invoiced prices that the first defendant well knew that it related to fruit juices only. I should add at this point that there is nothing in the defendants' pleading which alleges that Mr Scolaro made any representation to the defendants or either of them on or before 11 March 1996 that an 18 per cent discount would be given on white milk and all other dairy products.
I note in par 10(a) of the defence and counterclaim that the defendants allege that on 10 February 1996 they entered into the agreement with Mr Weaver to purchase Mr Weaver's business relying on the representations made by Mr Sorgiovanni as pleaded in par 8. This simply could not be the case because even on the defendants' own pleading the alleged representations were made in March 1996 and by then the defendants had already entered into the agreement with Mr Weaver.
In relation to par 10(b) of the defence and counterclaim there is no direct evidence on when the defendants sought finance from the Challenge Bank to purchase Mr Weaver's business. However on balance I think it would have been before the first defendant and Mr Weaver met with Mr Sorgiovanni on or about 7 March 1996. The first defendant gave evidence that he telephoned Mr Sorgiovanni in January 1996 and asked for something to support the defendants' application for finance and thereafter received a letter from Mr Sorgiovanni dated 31 January 1996. The defendant settled with Mr Weaver on 11 March 1996 which was only a few days after the meeting.
In relation to par 10(d) of the defence and counterclaim there is simply no evidence on when the defendants purchased a cool room, shed, forklift and other items. However, no matter when it was I find that none of these items were purchased because of any misleading and deceptive conduct by the plaintiff, the plaintiff not having engaged in any misleading and deceptive conduct.
In the final analysis I find that all of Mr Scolaro, Mr Sorgiovanni and Mr Musitano gave honest and reliable evidence. I have no hesitation in preferring and accepting the evidence of each and every one of them where it conflicts with the evidence of the first defendant. Unfortunately the defendants for one or more reasons got into financial difficulty very early in their business relationship with the plaintiff. They started to fall behind in their payments to the plaintiff in the first month of them starting business in amounts which far exceeded the difference between what discounts they were given on milk and all other dairy products and 18 per cent. Their indebtedness to the plaintiff got progressively worse in every one of their first eight months of business.
The plaintiff, and in particular Mr Scolaro, were more than accommodating towards the defendants in the circumstances. The plaintiff continued to supply the defendants despite the high outstanding amount on the defendants' account, delayed seeking recovery in full and even offered to allow the defendants to pay the outstanding balance interest free. I accept the evidence of Mr Musitano that the plaintiff has given the defendants credits from April 1996 to April 1998, over and above the discount of 3 per cent for damaged stock and faulty bottles included in the 18 per cent discount for fruit juices, totalling $15,865.06.
Mr Musitano also gave evidence, which I accept, that if an 18 per cent discount was given to the defendants on white milk and all other dairy products from March 1996 to June 1998 on the plaintiff's unit cost prices set out in the distributor's price list then the defendants would be entitled to an extra $13,598.86 over and above the discounts already given on such products. The defendants calculated their loss of $45,592.98 by applying an 18 per cent discount to the cost of white milk and all other dairy products shown on their invoices knowing when they did so that the prices on the invoices were already discounted from the distributor's cost price and also even on the first defendant's own evidence knowing from day one of the defendants' business relationship with the plaintiff that the discount on white milk products was "different" to the 18 per cent discount on fruit juices. I have no doubt that sadly the defendants became heavily indebted to the plaintiff and previously sought and continue to seek to off‑set their indebtedness by making allegations against the plaintiff on the issue of discounts which are simply not true.

Conclusion

For all these reasons I find that judgment should be awarded in favour of the plaintiff against the defendants in the sum of $71,887.96 together with an amount for interest thereon pursuant to s 32 of the Supreme Court Act 1935 from 1 July 1998 until the date of judgment. The defendants' counterclaim should be dismissed. I will hear from the parties on the question of costs.