Instant Colour Pty Ltd v Canon Australia Pty Ltd
[1996] FCA 763
•28 Aug 1996
CATCHWORDS
EQUITY - fraudulent misrepresentation - sale of colour photocopiers - whether absence of basis for honest belief in representations concerning performance
CONTRACT - breach - collateral warranty - sale of colour photocopiers - whether representations collateral - whether breach causative of loss
TRADE PRACTICES - sale of colour photocopiers - representations concerning machine - whether misleading and deceptive - whether false - whether relied on - whether loss occasioned by reliance
NEGLIGENCE - sale of colour photocopiers - representations concerning machine - whether made negligently - whether relied on - whether loss caused by reliance
SALE OF GOODS - sale of colour photocopiers - whether unfit for their purpose
DAMAGES - exemplary damages - whether applicants rights contumeliously disregarded - whether award appropriate
Property Law Act 1969 (WA), s20
Sale of Goods Act 1895 (WA)
Trade Practices Act 1974 (Cth), ss51A, 51A(1), 51A(2), 52, 53(a), 82 and 82(2)
Akerhielm v De Mare [1959] AC 789
cf Allen v Tobias (1958) 98 CLR 367
Annand & Thompson Pty Ltd v Trade Practices Commission (1979) 25 ALR 91
Arcadi v Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473
Ashington Piggeries v Christopher Hill Ltd (1972) AC 441
Australian Knitting Mills Limited v Grant (1933) 50 CLR 387
Ballantyne v Raphael (1889) 15 VLR 538
Bill Acceptance Corporation Limited v GWA Limited (1993) 78 FLR 171
Brambles Holdings Ltd v Carey (1976) 15 SASR 270
Coleman v Gordon M Jenkins & Associates Pty Ltd (1989) ATPR 40‑960
Collins Marrickville v Henjo Investments Pty Ltd (1987) 72 ALR 601; ATPR 41‑822
cf Concrete Constructions NSW Pty Ltd v Nelson (1991) 169 CLR 594
Corbridge v Bakery Factory Fun Shop Pty Ltd (1984) ATPR 40-493
Dare v Pulham (1982) 148 CLR 658
Ducret v Chaudhary's Oriental Carpet Palace Pty Ltd (1987) 16 FCR 562
Dunlop v Woollahra Municipal Council (1975) 2 NSWLR 446
Ellul v Oakes (1972) 3 SASR 377
Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd (1987) 75 ALR 271
Fenech v Sterling (1983) 79 FLR 244
Frith v Gold Coast Mineral Springs Pty Ltd (1983) 65 FLR 213
Ford Motor Co v Nowak 638 SW 2d 582 (Tex Div App 1982)
cf Four Square Stores (Qld) Ltd v ABE Copiers Pty Ltd (1981) ATPR 40,232
Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1
Gould v Vaggelas (1984) 157 CLR 215
Grant v Australian Knitting Mills Limited (1935) 54 CLR 49; [1936] AC 85
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Ltd (1978) 140 CLR 216
Hughes and Whitby Enterprises Pty Ltd v Canon Australia Pty Ltd and Anor (Jenkinson J, 1 October 1990, unreported)
James v ANZ Banking Group Ltd (1986) 64 ALR 347
Janssen-Cilag Pty Ltd v Pjizer Pty Ltd (1992) 37 FCR 526
Johns-Manville Sales Corp v Janssens 463 So 2d 242 (Fla Dist Ct App 1984)
Jones v Dunkel (1959) 101 CLR 298
Keehn v Medical Benefits Funds of Australia Ltd (1977) 14 ALR 77
Krakowski v Eurolynx Properties Pty Ltd (1995) 69 ALJR 629
Re La Rosa and Anor; Ex parte Norgard v Rodpat Nominees Pty Ltd and Anor (1991) 31 FCR 83
Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458
March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506
Milner and Ors v Delita Pty Ltd and Ors (1985) 61 ALR 557
Mister Figgins v Centrepoint (1981) 36 ALR 23
Munchies Management Pty Ltd & Anor v Belperio & Anor (1988) 11 ATPR 50,026
Musca & Ors v Astle Corporation Pty Ltd and Anor (1988) 80 ALR 251
Mutual Life & Citizens Assurance Company Limited v Evatt (1970) 122 CLR 628
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449
Netaf v Bikane (1990) 92 ALR 490
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 42 ALR 1
Potts v Miller (1940) 64 CLR 282
cf R v Sekhon (1986) Cr App R 19 (CA)
No 1 Raberem Pty Ltd and Ors v Monroe Schneider Associates (Inc) and Anor (von Doussa J, 8 February 1991, unreported)
Ricochet v Equity Trustees (1993) 113 ALR 30
Rumpe v Camrol Pty Ltd (1985) ATPR 40-522
San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340
JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435
L Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225
Smolonogov v O'Brien (1982) 67 FLR 311
Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 40 ALR 177
Tesco Supermarkets Limited v Nattrass [1972] AC 153
The Ophelia [1916] 2 AC 206
Vlasic and Others v Federal Capital Press of Australia Pty Ltd and John Fairfax and Sons Ltd (1976) 9 ACTR 1
Walker v Walker (1937) 57 CLR 630
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Welcher v Steain [1961] NSWR 1136
Wheeler Grace & Pierucci Pty Ltd v Wright & Anor (1989) 11 ATPR 40-940
Willis v David Jones Ltd [1934] SR(NSW) 303
INSTANT COLOUR PTY LTD (ACN 009 300 501) AND BRIAN IVEY AND MATTHEW FERGUSON AND NEVILLE CHARLES QUARTERMAINE AND EDWIN BENNETT IVEY AND RICHARD THOMAS MINCHERTON AND CANON AUSTRALIA PTY LTD (ACN 005 002 951) AND CANON FINANCE AUSTRALIA LTD (ACN 003 637 116)
NO WAG 93 of 1991
R D NICHOLSON J
PERTH
28 AUGUST 1996
IN THE FEDERAL COURT OF AUSTRALIA )
WESTERN AUSTRALIA DISTRICT REGISTRY )
GENERAL DIVISION ) NO WAG 93 OF 1991
B E T W E E N: INSTANT COLOUR PTY LTD
(ACN 009 300 501)
First Applicant
and
BRIAN IVEY
Second Applicant
and
MATTHEW FERGUSON
Third Applicant
and
NEVILLE CHARLES QUARTERMAINE
Fourth Applicant
and
EDWIN BENNETT IVEY
Fifth Applicant
and
RICHARD THOMAS MINCHERTON
Sixth Applicant
and
CANON AUSTRALIA PTY LTD
(ACN 005 002 951)
First Respondent
and
CANON FINANCE AUSTRALIA LTD (ACN 003 637 116)
Second Respondent
MINUTE OF ORDER
JUDGE MAKING ORDER: R D NICHOLSON J
DATE OF ORDER: 28 AUGUST 1996
WHERE MADE: PERTH
THE COURT ORDERS THAT:
The application be dismissed.
The applicants file written submissions as to costs within seven days, with answering submissions from the respondents within a further seven days.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
WESTERN AUSTRALIA DISTRICT REGISTRY )
GENERAL DIVISION ) NO WAG 93 OF 1991
B E T W E E N: INSTANT COLOUR PTY LTD
(ACN 009 300 501)
First Applicant
and
BRIAN IVEY
Second Applicant
and
MATTHEW FERGUSON
Third Applicant
and
NEVILLE CHARLES QUARTERMAINE
Fourth Applicant
and
EDWIN BENNETT IVEY
Fifth Applicant
and
RICHARD THOMAS MINCHERTON
Sixth Applicant
and
CANON AUSTRALIA PTY LTD
(ACN 005 002 951)
First Respondent
and
CANON FINANCE AUSTRALIA LTD (ACN 003 637 116)
Second Respondent
CORAM:R D NICHOLSON J
DATE:28 AUGUST 1996
PLACE:PERTH
REASONS FOR JUDGMENT
INDEX Page No
Preliminaries 2
Witnesses credibility
Use of Ivey's proof of evidence
Paragraph numbers
Background Factual Matrix 5
Market release
Machine drums
The initial representations
The first agreement
The second agreement
The further representations
The variation agreement
The continuing representations
The expansion to the Eastern States
Machine history
The business failure
The Hughes case
Nature of the Claims 13
Making of Representations 15
The initial representations
Copies between service calls
Response time of service technicians
Duration of service
Sales of 4,000 copies per month
Likely profitability
Resale value
Copy quality: Video statements
Ease of operation
The further representations
Copy quality: Internal Sales Manual
statement
The continuing representations
Training new technicians
Effect of damp paper
Service in every major centre
Total commitment to machines
and first applicant
The new drum
Fraudulent Misrepresentations 20
Breach of collateral warranty 22
The initial representations
The further representations
The continuing representations
Trade Practices Act Remedies 26
Negligent Misstatement 29
Non-fraudulent representations
Fraudulent representations
Reliance and Causation 34
The law
The initial representations as an inducement
to the first agreement
The initial and the further representations
as inducements to the second and variation
agreements
The initial, the further and the continuing
representations as inducements to the further
purchases and leases and the continuance of
the business
Merchantability 44
Exemplary Damages 49
Conclusion51
TABLE9-10
Table - Machine History as
pleaded by both parties
APPENDICES
Appendix `A' 52
Qualifications and occupation of parties,
witnesses and other relevant persons
Appendix `B' 58
Evidence relating to the making
of representations
(A)The initial representations
Representations concerning servicing
Representations concerning sales
and profitability
Relationship to competitors
Resale value
Copy quality
Ease of operation
(B)The further representations
Copy quality
(C)The continuing representations
The October meeting
Complaints concerning performance
and servicing
Training new technicians
Constant improvement in copy quality
Upgrading machine with improved parts
Representation concerning effect of
damp paper
Placing service problems under control
The Burswood meeting
Complaints
Service in every major centre
Provision of service
Total commitment to machines and
first applicant
Meeting at Canon's Perth office and
at Subiaco
Leases without a need for a guarantee
or security
The Sydney meeting
Offer to lease without security
No new version of copier
Representations concerning the new drum
Appendix `C' 107
Fraudulent Misrepresentations
The case for the applicants
Copies between service calls
Representations concerning copy quality,
capacity to produce copies from slides and
negatives and the ease of operation
The case for the respondents
The remainder of the representations
Appendix `D' 126
Trade Practices Act Remedies
Response time of service technicians
Sales of 4,000 copies per month -
Likely profitability
Resale value
Copy quality (slides/negatives)
Ease of operation
Service in every major centre
Representations concerning the drum
Appendix `E' 132
Reliance and Causation
The initial representations as an
inducement to the first agreement
The initial and the further
representations as inducements
to the second and variation agreements
The initial, the further and the
continuing representations as inducements
to the further purchases and leases and the
continuance of the business
This is an action in which the applicants allege the respondents misrepresented the true character of the Canon Colour Copier known as the CLC1 or CLC100 with the result that the applicants have suffered loss and damage in their business of colour photocopying.
PRELIMINARIES
The first applicant brings these proceedings as trustee of the Imageland Unit Trust. The second to sixth applicants are directors and shareholders of the first applicant. The applicants will each be referred to by their proper name. The second and fifth applicants will be referred to as Ivey and Ted Ivey respectively.
The respondents are companies duly incorporated in Victoria and in New South Wales. The first respondent will be described as "Canon" and the second respondent as "Canon Finance". Canon's parent company is incorporated in Japan and is referred to as "Canon Inc."
The CLC1 or CLC100 copiers are referred to as "machines" or "copiers". Other models are designated by their numbers.
Witnesses
Witnesses will be referred to by their proper name.
The qualification, occupation and former positions of all parties, witnesses and other persons referred to in the reasons are set out in Appendix A.
The witnesses called for the applicants were the applicants Ivey, Ferguson, Quartermaine, Ted Ivey and Mincherton; former Canon employees Pinkerton, Guy and Gill; proprietors of Canon machines Holman, Lynch and L Shadbolt; Instant Colour employees Cost, Manuel, Budden, K Ivey and K Shadbolt; the second applicant's
sister Miller and the applicants' solicitors Doncan and Taylor. Expert witnesses called for the applicants were Pinkerton, Cubitt, Cook, Hinton, Davey and Bateman.
The witnesses called for Canon were its employees or former employees Blandford, Richardson, Pleuss, Heddle, Kenney, Stokes, Dobson, Lagos, Tick, Furey, Pickup, Houghton, Channing and Germanos. Soma, an employee of Canon Inc, was also called. An accountant, Pickup was called as an expert witness. Other witnesses were Lindsay, Jackson, Tripp, Lupi, Lake, Blundell and White.
Credibility
For the respondents it is contended Ivey should be viewed as an unreliable witness who tailored evidence to suit the applicants' case. It is submitted the source of Ivey's credibility problem is that he kept on acquiring or proposing to acquire machines until as late as October 1989. Accordingly, it is said, the applicants' case had to be put that he relied on continuing assurances from Canon all problems would be fixed.
The impression which I formed of Ivey's evidence at trial was not such as to lead me to consider he was not an honest witness doing his best to put his view of events. In my opinion, his evidence is to be taken as it was given. It should be weighed in the context of the other available evidence on each issue. In this respect it is significant there is no credibility attack on Ted Ivey, Quartermaine or Mincherton who corroborate Ivey's evidence in some instances on which his credibility is attacked. The issues raised under this head on behalf of the respondents are matters which go to the issues of reliance and causation and are considered there. I do not consider the evidence of Ivey taking money from the till or Ivey's evidence of the repayment of his scheme creditors either alone or in conjunction with other matters raised for the respondents leads to a conclusion Ivey should not be believed so far as his evidence finds credibility
in the context of all other evidence on the same issue.
From my observations of Ferguson I reach the same view in relation to him.
The case for the applicants invites general adverse credibility findings against Stokes, Richardson, Soma, Dobson and Germanos, witnesses for the respondents. The case argued in support is based on inconsistencies in evidence. From by observation of the witnesses I do not consider any general credibility findings are appropriate. The reliability of particular evidence of these witnesses is best addressed in the context of each particular issue.
Use of Ivey's proof of evidence
During the trial a ruling was given that Ivey's proof of evidence from which he had refreshed his memory, notwithstanding it was a privileged document apart from that act, should be made available to counsel for the respondents for inspection without penalty. Subsequently, at the end of Ivey's cross-examination, counsel for the respondents tendered the proof "at my learned friend's request". It is now sought on behalf of the applicants to rely on the proof. Objection is taken to that course on behalf of the respondents.
There is authority that in such circumstances the document which is inadmissible thereby becomes evidence: Walker v Walker (1937) 57 CLR 630; cf Cross on Evidence, 4th ed, (1991) at 439, par17240; see also at 101, par1665.
In reliance on this, the case for the applicants seeks to use the exhibited proof as the sole source of proof of matters which did not emerge in Ivey's evidence.
In cross-examination of Ivey, counsel for the respondents stated he would put a number of matters to Ivey arising from the proof. The question therefore arises whether the tender of the proof in the circumstances was made only for the trier of fact to follow the cross-examination of the witness: cf R v Sekhon (1986) Cr App R 19 (CA). No such qualification was made in the tender and, given the right in the applicants to make an unqualified call for the proof, I do not consider any such limitation can be implied.
Nevertheless, there is the question of whether evidence in the proof is to be accorded probative status when there is no other evidence available on a point. That issue falls for judgment in the context of the trial: it was lengthy, detailed and particular. Every aspect of the applicants' case was closely cross-examined. Finding a fact proved on the basis of Ivey's proof of evidence when that fact did not form part of his oral evidence and was not subject to cross‑examination, is out of accord with the parties' rigorous approach to all other aspects of the case.
In my opinion, while I accept the proof forms part of the evidence before me, I assess its weight in the context of the trial. Doing that, I am not prepared to rely on it where it is the sole evidence of the fact in issue and has not been subject to cross-examination.
Paragraph numbers
The numbers used in conjunction with the representations and warranties contended for in the applicants' case and the defence in the respondents' case are the paragraph numbers in the minute of amended substituted statement of claim and the defence to it respectively.
BACKGROUND FACTUAL MATRIX
Market release
From May to September 1987 Canon Inc tested the CLC1 machine in Japan. It released the machine on the Japanese market in April 1987.
The machine was released on the Australian market in October/November 1987.
Machine drums
In January 1987 a problem described as "banding" of copies was known in Japan and ascribed to that part of the machine known as the drum. A "first generation drum" was succeeded by a "second generation drum" installed between May and July 1988. In late December 1988 and early January 1989 Canon Inc sent Canon five "third generation" test drums . Four were tested in Sydney and Melbourne. A small shipment of the "third generation drum" arrived at the end of January for installation where most required. Dobson advised Pinkerton testing showed the new drum was effective in eliminating banding.
The initial representations
On 8 July 1988 Adolphe demonstrated the copier to Ivey and Ferguson at the Whitford City Shopping Centre. Between 12-19 July 1988 he is alleged to have made certain representations and warranties. He supplied them with a video on the machine in which it is admitted certain statements were made which the applicants contend constituted representations and warranties. These oral and video representations are called "the initial representations".
The first agreement
Either on 19 July 1988, as the applicants allege, or on or shortly after 1 August 1988, as the defence alleges, Ivey and Ferguson trading as Imageland agreed with Canon to purchase two machines (224 and 203) for the sum of $51,950 each ("the first agreement"). At the same time they also entered into two Maintenance Guarantee Agreements with Canon. It is alleged they did so on the faith of the initial representations.
On 22 July 1988 Ivey and Ferguson registered the business name "Imageland". Around 1 August 1988 they commenced trading under that name as a business of copying, laminating and photo enlarging. They continued to conduct the business until around 12 September 1988 when it was transferred to Imageland Pty Ltd as trustee of the Imageland Unit Trust.
The second agreement
On the applicants pleading a further agreement ("the second agreement") was made on 24 August 1988 between Imageland and Canon for the purchase of a further three machines. The price for each was $46,950. Maintenance Guarantee Agreements were entered into for each of them.
The further representations
For the applicants it is pleaded that during the period August 1988 to September 1988 further representations and warranties ("the further representations") were made to it by Canon in respect of the machines either in the Canon Internal Sales Manual entitled `Intelligent Colour' or by Adolphe.
The variation agreement
Again on the applicant's pleading, around 26 September 1988 Canon and Imageland entered a variation agreement to the second agreement ("the variation agreement"). It is claimed this had the effect of increasing the purchase in the second agreement by five machines to eight machines at the cost of $40,940 each, with associated Maintenance Guarantee Agreements being concluded.
The applicants plead that induced by and in reliance on the further representations they entered into the variation agreement
and continued their business. The words in the Internal Sales Manual are admitted as is the continuance of the business by the applicants.
The continuing representations
Turning to the position between October 1988 and January 1989, the pleaded case for the applicants alleges additional representations and warranties ("the continuing representations") were made by representatives of Canon to the applicants. It is alleged these were made at a meeting at Canon's Perth office, a further meeting around 24 November 1988 at Burswood International Hotel, Perth ("the Burswood meeting") and a meeting at the Perth office of Canon and later at Subiaco around December 1988. Additionally an admitted letter sent around 24 January 1989 by Canon to Instant Colour ("the Richardson letter") is claimed to contain a representation and warranty.
Two further source of representations and warranties are claimed in the applicants' case. The first is "the Sydney meeting" said to have occurred at Canon's Sydney office around 16 February 1989. The second were alleged oral statements said to have been made on behalf of Canon by Manuel and Heddle around 7 March 1989 and known as "the March representations".
The expansion to the Eastern States
At the time of the Burswood meeting the applicants were considering extending the operation of their business into other Australian States ("the Eastern States"). On 1 February 1989 Ivey moved to Sydney to supervise this extension.
Machine history
Table 1, which follows,summarises the pleadings of both the applicants and the respondents in relation to the machines purchased or leased and the agreements entered into in relation to those dealings.
TABLE
MACHINE HISTORY AS PLEADED BY BOTH PARTIES
Machine No
Order No
Maintenance Guarantee Agreement - Order Form Date
Invoice Date
Delivery Date
Lease Agreement Date
Lease Invoice Date
Lease Cancellation & Sale to First Respondent Date
Purchase
_______________
2nd Maintenance
Guarantee or
Order FormDate Cheque Date
Payment Date
FIRST AGREEMENT
224
Blank
19/7/88
4/8/88c
1/8/88
31/8/88c
203
Blank
19/7/88
25/8/88
22/8/88
SECOND AGREEMENT
242
270096
24/8/88
28/10/88
15/10/88
30/10/88c
337
270096
24/8/88
24/11/88
21/11/88
29/11/88
259
270096
24/8/88
17/10/88
(28/10/88)
17/10/88
30/10/88c
VARIATION AGREEMENT
(Including Machines 242, 337 and 259)
334
270096
26/9/88
21/11/88
(24/11/88)
21/11/88
29/11/88
414
Blank
23/2/89
(17/2/89)
(16/2/89)
28/2/89
20/2/89
24/2/89
28/2/89
0/3/89
17/2/89 20/3/89
22/3/89c
Machine No
Order No
Maintenance Guarantee Agreement - Order Form Date
Invoice Date
Delivery Date
Lease Agreement Date
Lease Invoice Date
Lease Cancellation & Sale to First Respondent
Purchase
______________
2nd Maintenance
Guarantee orOrder Form Cheque Date
Payment Date
381
Blank
16/2/89
31/3/89
(24/4/89)
31/3/89
15/4/89
24/4/89
VARIATION AGREEMENT
406
Blank
17/3/89
(23/2/89)
17/3/89
28/2/89
(3/4/89)
24/2/89
17/3/89
0/3/89
17/3/89 20/3/89
22/3/89c
443
116249
29/4/89
(24/4/89)
28/4/89
1/5/89
28/4/89
28/4/89
507
Blank
16/6/89
19/6/89
512
Illegible
7/6/89
19/6/89
627
3010
23/6/89
19/6/89
571
Blank
11/10/89
Applicant's
Pleading
21,23
23
24.1
35.3, 36.2, 39.2, 40.2, 41
35.3, 36.2, 39.2, 40.2,
37
38
Key
c- circa
*- leased by Canon Finance
NB:Dates in brackets indicate alternative dates pleaded by respondent
.
Machines 224 and 203 were placed in Western Australia at various shopping centre locations. Machine 224 was relocated from Western Australia to Victoria and set up at the Chadstone City Shopping Centre on 17 or 24 April 1989. In early May it went to Southlands until its sale to Top Kat Pty Ltd in May 1990.
Machine 242 was located initially at Midland, Western Australia but from 2 May 1989 operated from Parramatta, New South Wales and was removed when Instant Colour was evicted from that site in May/June 1990. 337 was used in Western Australia and Warrawong, New South Wales (from June 1989) before sale to B Campbell in November/December 1989. By 15 May 1989 334 had been moved from the Western Australian locations to the Victorian location of Doncaster. It was sold to Vinbru Nominees Pty Ltd in early 1990.
On 20 February 1989 four lease of sites were entered into at the Westfield Shoppingtown Centre, New South Wales. Two days later the business name Instant Colour was registered in that State.
Around 24 February 1989 Canon Finance agreed to lease to Instant Colour machines 406 and 414 ("the 406/414 lease agreements"). In March 1989 the lease agreements were cancelled and on 20 March 1989 Instant Colour agreed to purchase from Canon machines 406 and 414 for a total of $81,880 ("the 406/414 purchase agreement"). Instant Colour then sold machine 406 to Grieves and machine 414 to Tassell and leased them back. Machine 406 was located at Roselands until its sale to a Ms Lupi in May 1990. As at October 1989 Instant Colour was still operating at Roselands from temporary premises. Machine 414 was installed at North Ryde then at Chatswood. From 29 May 1989 it was moved to Liverpool. It remained there until the end of October 1990 when it was removed to Western Australia and auctioned.
On 15 April 1989 Instant Colour entered into an agreement with Canon to lease machine 381 ("the 381 machine agreement"). It was installed at Centre Point Tower, Sydney at the end of March 1989
and then Miranda, New South Wales on 24 April 1989 and remained there until repossessed by Canon in November 1990.
By an agreement in writing made on 28 April 1989 machine 443 was also leased to Instant Colour by Canon ("the 443 lease agreement"). It was located at Northlands, Victoria until sale to Top Kat in May 1990. Instant Colour entered into a short term retail licence for these premises for a period of 12 months from 2 October 1989.
Machines 507, 512 and 627 were similarly leased on 19 June 1989 ("the 507, 512 and 627 lease agreements"). 507 was located at Noble Park, then Belmore and Lurmea prior to repossession by Canon in November 1990. After a short time at Brandon Park, machine 512 was located at Altona, Victoria from 16 October 1989 until its sale to Top Kat in June 1990. Ivey's evidence was that Instant Colour entered into a short term retail licence for the Altona premises for a period of 12 months from 2 October 1989. Machine 627 went to Corio, Victoria on 26 June 1989 and was sold to Top Kat in May 1990. It remained at Corio until October 1990.
Machine 571 was purchased by Instant Colour from Wrightfoot Pty Ltd on 28 June 1989. On 11 October 1989 Instant Colour entered into a Maintenance Guarantee Agreement with Canon in relation to this machine. It was operated by Instant Colour at Chadstone, Victoria. Ivey's evidence was Instant Colour entered into a short term retail licence for these premises for a period of 12 months as from 2 October 1989. Mallar Holdings Pty Ltd took over the account on 16 March 1990. Instant Colour took over again around 11 May 1990 and Top Kat purchased the machine around 27 June 1990. It was repossessed by a finance company in October 1990.
Machine 259 was bought by Instant Colour but was later on-sold to persons who are not parties to this action.
As has been seen, in May/June 1990 with the involvement of Instant Colour Top Kat took over the machines 224, 443, 512, 627 and 571. This followed an agreement between Instant Colour and Mallar Holdings Pty Ltd for the sale of the same machines, which agreement was not performed. As part of its purchase Top Kat assumed an indebtedness existing between Mallar and Canon.
The business failure
On 28 June 1989 Imageland Pty Ltd changed its name to Instant Colour Pty Ltd.
In September 1989 Canon released the CLC500 machine and followed that shortly with the release of the CLC200 machine.
Commencing in October 1989 Instant Colour sold or attempted to sell its various sites Australia wide. It ceased trading in early October 1990.
The Hughes case
On 1 October 1990 the decision in Hughes and Whitby Enterprises Pty Ltd v Canon Australia Pty Ltd and Anor (Jenkinson J, 1 October 1990, unreported), ("the Hughes case") was handed down in which Canon was held liable for statements made by its servant Ginnane in relation to the functioning of the machine. The liability was found to arise pursuant to s52 of the Trade Practices Act 1974 (Cth) ("the TPA") and the law of negligence. Damages were awarded.
The present proceedings were commenced by the applicants on 2 September 1991.
NATURE OF THE CLAIMS
The applicants case is that they were induced by and relied on the initial representations, the further representations and the continuing representations in not returning the machines, entering into the 406/414 purchase agreement, the 381 lease agreement, the 443 lease agreement, the 507, 512 and 627 lease agreements, in using the machines in their business and continuing to conduct that business.
These claims involve the assertion that at the time they entered into the variation agreement the applicants assumed the risk of being bound in contract so that the initial and further representations became a material cause of all their subsequent actions. Thereafter it is said the continuing representations bound the applicants more deeply into their business venture so that whether or not as a matter of law they could have withdrawn offers to buy machines, that was not a relevant consideration in their minds. As put on behalf of the applicants, there were two important factual considerations acting on their minds. Firstly, they had undertaken a significant step by signing order forms on 29 September 1988 so that it could not be said with certainty any withdrawal by them would be accepted. Secondly, the continuing representations made it unnecessary for them to give consideration to such a course of action because they believed the respondents' representatives.
This case is brought in reliance on breach of collateral warranty, fraudulent misrepresentation, ss52 and 53(a) of the Trade Practices Act, the law of negligence and breach of the warranty of merchantable quality. The applicants seek damages and exemplary damages.
The claims are alleged to be founded on what the applicants contend were the "poor performance and frequent servicing requirements" of the machines giving rise to "the breakdown problem". These are particularised in the applicants' case as frequent breakdowns in copy quality. The most frequent reasons for the breakdowns are said to have been the failure of various parts of the copier including the drums, coronas, transfer drum screen, OPC cleaning blade and the fixing unit (rollers and blade). Ivey testified that the problems included fading in copy colour, banding, lines, spots and oil marks as well as "phantom paper jams". Ferguson testified to similar effect, adding reference to defective reproduction of slides.
It is not in dispute the machines of the applicants did breakdown nor that when that occurred Instant Colour would telephone Canon and request a service.
The machines comprise a number of consumables and other parts. Evidence for Canon was these require frequent replacement. Soma regarded this as a basic characteristic of photocopiers. His evidence was that in the case of a colour photocopier the servicing requirements were greater than for black and white because the machine was inherently more complex and the instability of the image creation area was greater because four different toners are used and the process of image reproduction is repeated four times. That area is where the photosensitive drum, the toner and the paper meet.
MAKING OF REPRESENTATIONS
Based on the consideration of the evidence referred to in Appendix B I make the following findings of fact concerning the making of the representations pleaded.
The initial representations
(1)Copies between service calls (19.2)
On or about 12 July 1988 Adolphe on behalf of Canon represented to Ivey and Ferguson the CLC machines would each produce between 5,000 to 10,000 copies before they would need a service and a major service on each would be required at 20,000 copies.
(2)Response time of service technicians (19.4 and 19.29)
On or about the same date Adolphe represented to Ivey and Ferguson that Canon's target was to arrange a service technician to attend within 2 hours of a service call.
(3)Duration of service (19.29)
Between 12 to 19 July 1988 it was represented to the applicants by Adolphe that if a machine required a minor service for any reason, the service would take approximately 30 minutes to one hour.
(4)Sales of 4,000 copies per month (19.5 and 19.24)
On or about 12 July 1988 Adolphe represented to Ivey and Ferguson that Instant Colour could expect sales of 4,000 copies per month.
(5)Likely profitability (19.22 and 19.28)
Between 12-19 July 1988 it was represented to Instant Colour that the CLC machines would make a very lucrative business and if the machines were put in shopping centre malls they would be the first to do so and "should make a killing".
(6)Resale value (19.7 and 19.27)
On or about 12 July 1988 and between 12-19 July, 1988 Instant Colour was told by Adolphe for Canon that it would get approximately 60% of its purchase price back if it were to sell the CLC inside two years.
(7)Copy quality: Video statements (19.10-12, 19.14-15, 19.18)
The following representations were in a video given by Canon to Ivey:
"19.10"...All this Canon technology was integrated to deliver the highest quality colour copies on plain paper, but that's just the beginning...";
19.11"...The Colour Laser Copier goes beyond basic colour copying to create totally new images with its exclusive digital technology that manipulates both colour and image for unsurpassed creativity...";
19.12"...For brilliant finished quality copies from any original, even 35mm positive slides and negative films, only Canon could make such impressive technology so simple. The copies is easily integrated into any office environment since it uses a regular power source of 115 vaults and plugs rights into the wall...";
...
19.14"...By now you have seen that the Colour Laser Copier has extraordinary capabilities but in addition to these, it also has the ability to produce colour copies of colour slides and even negative film; brilliant copies as big as 11 x 17 and faithful to the original in every detail...";
19.15"...There is no faster, more economical way to get brilliant full colour copies of positive slides and negative film..."
...
19.18"...And that's just a sampling of all you can do with the Canon Colour Laser Copier, but while it does let you reproduce any image with unprecedented colour quality, there are still some things for legal reasons this copier should never copy, such subject matter includes any document issued by the United States Government or any of its agencies...";".
...
(8)Ease of operation (19.12-13, 19.16 and 19.17)
In the video the following representations were made concerning the ease of operation of the CLC machine:
"19.12"...For brilliant finished quality copies from any original, even 35mm positive slides and negative films, only Canon could make such impressive technology so simple. The copies is easily integrated into any office environment since it uses a regular power source of 115 vaults and plugs rights into the wall...";
19.13"...Let's look at the operation panel to see just how simple it is...";
...
19.16"...Now that you have seen just some of what the Colour Laser Copier can do, let me show you have easy it is to keep your copier performing; it is so easy that most
maintenance tasks can be done by anyone who uses the copier...";
19.17"...With such easy access, any paper jam can be cleared up right away...";".
The further representations
(9)Copy quality: Internal Sales Manual statement (25.1 and 25.2)
The Internal Sales Manual in which it is admitted there were statements that "the colour quality will be flawlessly crisp and clear every time" and "it is possible to make brilliant full-colour copies from 35mm slides and negatives" was delivered to Ferguson by Adolphe for Canon in August/September 1988 prior to the conclusion of the variation agreement.
(25.3 is a plea in the alternative to 19.7 and 19.27 which have each been made out so the alternative does not require
consideration.)
The continuing representations
(10)Training new technicians (28.2 and 28.5)
At the October meeting in response to Ivey complaining to Adolphe about poor machine performance and frequent servicing requirements, Stokes represented more technicians were being trained by Canon.
(11)Effect of damp paper (28.4)
At the October meeting Stokes represented that the applicants' quality problems were caused by damp paper.
(12)Service in every major centre (28.6(c))
A breakfast meeting was held at the Burswood International Hotel on 27 October 1988 which was attended by Ivey, Ferguson, Blandford and Kenny.
At the Burswood meeting the applicants raised the issue of copy quality and machine break-downs in the context of the availability of service if their business expanded interstate.
At the Burswood meeting Blandford represented Canon could give service in every major city of Australia.
(13)Total commitment to machines and first applicant (28.6(e))
At the Burswood meeting Blandford represented Canon were totally committed to the machines and to Instant Colour and said "...this is Canon you are talking to...".
(14)The new drum
(a)at the October meeting (28.5)
Stokes represented at the October meeting new parts were being developed which would improve the durability and performance of the copier.
(b)at the Burswood meeting (28.6(b))
At the Burswood meeting on 27 October 1988 Blandford represented to Ivey and Ted Ivey that a new, improved photosensitive drum had been developed in Japan and would be available in Australia in May 1989 and would be the answer to the problem of colour quality.
(c)in the Richardson letter (29)
On or around 24 January 1989 Instant Colour received and read a letter from Canon under the signature of Richardson in which it was represented the new, improved photosensitive drum "was developed specifically to improve durability and therefore improve the overall performance and reliability of `the copiers'".
(d) the March representations (32)
On or around 7 March 1989 Heddle represented to Instant Colour that Canon had successfully tested a new, improved photo-sensitive drum in its Canon Colour Copy Shop in Sydney and it had done 2,000 copies without breaking down.
To the extent any of the applicants' pleaded representations are not reflected in any of the above findings they are not made out.
FRAUDULENT MISREPRESENTATIONS
It is the applicants case that Canon fraudulently made the representations and warranties at pars19.2, 19.8, 19.12, 19.13, 19.14, 19.18, 19.19, 19.20, 19.21, 25 (all in par51 of the amended substituted statement) and 28, 29, 31 and 32 (in par52 of that statement), either knowing them to be false or recklessly not caring whether they were true or false. Of these, 19.8, 19.19, 19.20, 19.21, and 31 do not require further consideration in the light of the findings earlier made.
It is accepted for the applicants that in order to succeed on these claims they must establish not only the falsity of the representations and warranties but also the knowledge by Canon of that falsity. In Krakowski v Eurolynx Properties Pty Ltd (1995) 69 ALJR 629 at 636 it was said by the majority that "in order to succeed in fraud, a representee must prove, inter alia, that the representor had no honest belief in the truth of the representation in the sense in which the representor intended it to be understood." The question is not whether Canon "honestly believed the representation to be true in the sense assigned to it by the Court on an objective consideration of its truth or falsity, but whether [it] honestly believed the representation to be true in the sense in which [it] understood it albeit erroneously when it was made": Akerhielm v De Mare [1959] AC 789 at 805-6.
To find fraud it is not necessary that there be any malign aspect, prior planning or evil motive: Krakowski at 637. This is important because the case for the respondents accepts the alleged representation concerning service calls, if found to be made out, was untrue but contends there is no plea or evidence to support the assertions about how the public was treated or that Canon was motivated by greed. As I read Krakowski it is not necessary for those ingredients to be made out to arrive at a finding of fraudulent conduct.
The standard of proof which applies to the applicants in respect of the pleading of fraud is that they must satisfy the Court on the balance of probabilities even though fraud is involved: Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 450.
The knowledge of Canon will be found from the knowledge of a person or persons so closely and relevantly connected with the company that the state of mind of that person or those persons can be treated as being identified with the company so their state of mind can be treated as being the state of mind of the company: Krakowski at 639 approving Brambles Holdings Ltd v Carey (1976) 15 SASR 270 at 279; see also at 275-6 and 281-2. Division of function among officers of a corporation responsible for different aspects of the one transaction does not relieve the corporation from responsibility determined by reference to the knowledge possessed by each of them: Dunlop v Woollahra Municipal Council (1975) 2 NSWLR 446 at 485; Tesco Supermarkets Limited v Nattrass [1972] AC 153 at 170.
Based on the findings in Appendix C I find Canon made the following representations without the basis for an honest belief in their truth and so made them fraudulently:
(a)19.2: the CLC machines would each produce between 5,000 to 10,000 copiers before they would need a service and major service on each would be required at 20,000 copies (made with authority by Adolphe on or about 12 July 1988).
(b)25: colour quality will be flawlessly crisp and clear "every time" (made in the Internal Sales Manual during the period August 1988 to September 1988).
BREACH OF COLLATERAL WARRANTY
In par19 of the statement of claim it is pleaded for the applicants that Canon agreed with Ivey and Ferguson the initial representations were an agreement collateral to the first agreement. This is understood for the respondents to mean Instant Colour is claiming against Canon damages for breach of contracts collateral to the contracts of sale between Instant Colour and Canon in relation to CLCs 224, 203, 242, 334, 337, 414 and 406 and breach of contracts collateral to the agreements for lease entered into between Instant Colour and Canon Finance in relation to CLCs 507, 512, 627, 381 and 443.
For a representation to constitute a warranty it must have the character of a promissory statement. In JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442 the High Court said the only statement which would support a collateral warranty was required to be promissory and not merely representational. See also Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1. The question is not governed by form but rather by consideration of whether in its context each statement is properly to be understood as an assumption of obligation: Cheshire & Fifoot's Law of Contract 6th Australian ed, (1992) 200, par414. The ultimate question is whether the person making the statement is to be taken to have warranted its accuracy, that is, promised to make it good: Ellul v Oakes (1972) 3 SASR 377 at 387.
For a warranty to be found to bind Canon in contract it is necessary that it be found the person making it had the requisite authority.
The initial representations
Apart from those made in the video, these were made by Adolphe. For the respondents it is argued that the case for the applicants does not plead any particular circumstances on which to found a conclusion Adolphe had express, implied or ostensible authority to enter into a binding agreement to effect the sale of the copiers acquired or leased by Instant Colour. Furthermore it is submitted for the respondents the evidence establishes Adolphe as an employee of Canon had authority as a sales representative. The applicants could not have understood or relied on him to have any authority to bind Canon contractually. It is contended the evidence shows only Adolphe arranged for the execution of order forms, a fact consistent with him not having any authority to make contractual promises for or on behalf of the Canon.
For the same reason it is contended Adolphe's representations could not constitute an expression of intention on the part of Canon to guarantee its truth.
The applicants' claim is put on the basis Adolphe was acting within the scope of his authority as a salesman of Canon in making the initial representations. The question then becomes whether there is evidence that any of the initial representations were within the scope of that authority.
In the case of 19.2 (copies between service calls) there is the evidence of Guy that salespersons were instructed by Kenny, Pleuss and Stokes to convey to purchasers the representation. Adolphe testified Pleuss so instructed him. The evidence is considered in Appendix B. In my opinion there is evidence Adolphe was expressly authorised to make this representation.
In the case of 19.7 and 19.27 (resale value) I do not consider there is any evidence of authority of Adolphe to make the representation as a contractual promise binding Canon: see the evidence considered in Appendix B.
The remainder of the initial representations were either not made in a context in which they were promissory statements or were not made with the necessary authority. I base this finding on the evidence considered in Appendix B. In particular, the representations made in the video, designed to promote the product to viewers at large more in the nature of puffery, are not in the nature of statements to be understood as a promise or assumption of contractual obligation.
So far as the initial representations are concerned, they were made in relation to the first agreement which was one to acquire machines 224 and 203. It was made with Ivey and Ferguson. The respondents contend the applicants have failed to prove there was any assignment of any of the rights acquired under the agreement made with them to Instant Colour. It is also contended they have failed to prove any assignment in accordance with the provisions of s20 of the Property Law Act 1969 (WA). However, it is admitted by the respondents that after the period from July to September 1988 , during which Ivey and Ferguson had conducted the business of colour photocopying, Ivey and Ferguson transferred the business and its name to Imageland Pty Ltd. That company as Instant Colour continued to run the business and made payments pursuant to the first agreement. The applicants therefore correctly contend the rights of Ivey and Ferguson under that agreement were assigned in equity to Instant Colour. The consideration for the assignment was the acceptance by Instant Colour of liability under the agreement.
Even if the assignment is not effective at law, Ivey and Ferguson are claimants for relief.
In my opinion the case based on breach of collateral warranty on representation 19.2 is limited to the first agreement. There is no evidence of oral agreements made with Adolphe in relation to the agreements made in July, August and September 1988. So far as the agreements made in 1989 are concerned, it cannot be said representation 19.2 was made with the intention and having the effect of inducing Instant Colour to lease agreements with Canon Finance a year later.
The further representations
Representation 25.1 ("flawlessly crisp and clear every time") is the nature of a promissory statement. However, there is no evidence of anything being said in relation to it, so that the context of its delivery is confined to the presentation of the document. The evidence of Blandford and Pleuss establishes Adolphe had authority to deliver the Manual but not that he had any authority to make contractual promises in its terms. Although the Manual was clearly designated as a document of Canon, I do not consider on the evidence it can be concluded this representation was promissory.
The representation in 25.2 addresses only possibilities and is not in the nature of a promissory statement.
The continuing representations
The representations concerning training new technicians (28.2 and 28.5) were statements of intention and not in their context promissory.
From consideration of the evidence in Appendix B I consider the representation concerning service in every major city (28.6(c)) and Canon's commitment to the machines (28.6(e)) were made by a person (Blandford) of sufficient authority to bind Canon and were made in a context (discussion of the expansion to the East by Instant Colour) where they were promissory.
Based on a consideration of the evidence in Appendix B I find none of the other continuing representations were made in their context as promissory statements leading to a contractual warranty in those terms.
For these reasons I conclude that the representations in relation to which the pleading concerning breach of collateral warranty requires consideration are:
19.2:copies between service calls (in relation to the first agreement only)
28.6(c):service in every major city
28.6(e):Canon's total commitment
In my opinion there is no evidence to support an allegation of breach of the collateral warranties 28.6(c) and (e). Canon did provide service in every major city and was committed to the machine. It follows that only 19.2 remains for consideration in relation breach of collateral warranty. There is abundant evidence 19.2 was breached and I so find.
TRADE PRACTICES ACT REMEDIES
It is the applicants' case the representations and warranties were made in trade or commerce within the meaning of the Trade Practices Act 1974 (Cth) and constituted conduct which was misleading or deceptive or was likely to mislead or deceive, contrary to the provisions of s52 of that act; or were false representations that the machines were of a particular standard quality or grade, contrary to s53(a) of that act.
It is admitted the respondents are a `corporation'. So far as representations and warranties were made they were part of conduct in trade or commerce: cf Concrete Constructions NSW Pty Ltd v Nelson (1991) 169 CLR 594 at 602.
Relevant to whether the representations and warranties are misleading or deceptive or likely to be such, s51A(1) of the TPA provides where a representation with respect to any future matter (including the doing of, or the refusing to do, any act) is made by a corporation which does not have reasonable grounds for making it, the representation shall be taken to be misleading.
The section further provides that the corporation shall be deemed not to have had reasonable grounds unless it adduces evidence to the contrary. The section only has application where the representation in question is a representation with respect to a future matter.
The authorities establish the conduct in question is not limited to knowing or intentional conduct: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Ltd (1978) 140 CLR 216 at 233; Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88. Conduct will be categorised as misleading or deceptive if it is characterised as inducing or capable of inducing error: Keehn v Medical Benefits Funds of Australia Ltd (1977) 14 ALR 77 or "leads into error": Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 42 ALR 1 at 6. It is not required it be demonstrated anyone has actually been misled: Annand & Thompson Pty Ltd v Trade Practices Commission (1979) 25 ALR 91 at 102; Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 40 ALR 177.
So far as s53(a) of the TPA arises, the applicants contend there is a breach of the proscription by the respondents that a corporation shall not falsely represent goods are of a particular quality.
The character of a representation said to be false or misleading is to be tested at the date of the making of the representation although this may be determined by reference to later events: Bill Acceptance Corporation Limited v GWA Limited (1993) 78 FLR 171 at 178 per Lockhart J.
In the case of predictive or promissory statements non-fulfilment of a prediction or promise may be evidence raising an inference such a risk of non-performance existed or that qualification prediction or promise was required: Wheeler Grace & Pierucci Pty Ltd v Wright & Anor (1989) 11 ATPR 40-940 at 50,251 per Lee J.
For the reasons set out in Appendix D I find the following representations were misleading and deceptive:
(a) 19.2: copies between service calls
(b) 19.7 and 19.27: resale value
(c) 19.16: ease of operation
(d) 25.1: copy quality "every time".
The applicants submit each of the representations also breach s53(a) of the TPA. The terms "standard" and "quality" have been discussed in Ducret v Chaudhary's Oriental Carpet Palace Pty Ltd (1987) 16 FCR 562 where it was held that both terms have a wide meaning. In relation to "standard" Ryan J held the term meant a "definite degree of any quality". In relation to "quality" it was held the term meant:
"extends beyond the degree or grade of excellence which a thing can be said upon physical examination to possess in comparison with others of a similar kind, and which includes the virtues, attributes, properties and special features of the thing".
On consideration of the evidence considered in appendices C and D in relation to pars19.2, 19.16 and 25.1 I consider those representations were made falsely.
In Ducret, Ryan J held that a representation that goods had a value that was ten times the market price of similar goods was not a representation the goods were of a particular quality or standard. In this case a statement that the goods would retain 60% of their purchase price was not a statement as to quality. Rather it was a statement in connection with the existence or likely existence of a secondary market for the CLC's. As such it does not relate to the CLC's quality or standard. In my opinion 19.7 and 19.27 do not breach s53(a).
The respondents plead that each cause of action by each applicant based on a breach of s52 of the TPA is barred by s82(2) of that Act. Section 82(2) provides an action under s82(1) may be commenced at any time within three years after the date on which the cause of action accrued. A cause of action under s82 accrues not when a breach of PtIV of PtV occurs, but when loss or damage is suffered as a consequence of such breach: Arcadi v Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473; Fenech v Sterling (1983) 79 FLR 244; James v ANZ Banking Group Ltd (1986) 64 ALR 347; Coleman v Gordon M Jenkins & Associates Pty Ltd (1989) ATPR 40-960. The action was commenced on 2 September 1991. It is alleged loss or damage occurred up until the applicants went out of business in October 1990. It appears the section therefore provides no barrier to the applicants' claims although the question will require specific consideration in relation to findings of loss and damage.
NEGLIGENT MISSTATEMENT
For the applicants it is also pleaded that at the time of the making of the representations and warranties (pars19, 25, 28, 29, 31 and 32) the respondent intended the first, second and third applicants to rely on those statements and be induced by them to enter into the Agreements and commence and continue the copying, laminating and photo enlarging business. It is pleaded the respondents therefore had a duty to take care in the making of the representations and warranties.
When a person ("the representor") gives advice or information to another ("the representee") on a serious matter there may be a duty owed by the representor to the representee. The representor must realise or ought to realise he or she is being trusted to give the best information or advice as a basis for action by the representee. It must also be reasonable for the representee to act on that information and advice. The nature of the duty is to take due care to ensure any representations are true and reliable. For liability to be established there must also be a failure to take such due care and damage caused by the falsity of the representation. See Mutual Life & Citizens Assurance Company Limited v Evatt (1970) 122 CLR 628; L Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225
at 250; J W Carter and D J Harland, Contract Law in Australia third ed (1966) 363, par1029. The duty of care arises on the making of the statement. Whether it was made negligently is to be judged on the evidence at the time the statement was made: San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 356-8.
The case for the applicants pleads the duty was breached in three principal respects. The first is the representations and warranties were made without undertaking any or any adequate enquiries as to the capabilities of the machines to fulfil the qualities referred to in those representations and warranties. Secondly, they were made without any reasonable grounds or foundation. Thirdly, there were records and reports of the respondents' servants, agents and employees indicating that the experience of the performance of the machines were such as not to justify the representations as made. These allegations are particularised in terms of the particulars pleaded in support of the allegations of fraudulent misrepresentation. The initial representations, the further representations and the continuing representations are all relied on.
The applicants rely on San Sebastian to support a submission that proof of reliance is generally viewed as being indicative of a relationship of proximity. It is submitted on their behalf that a duty of care with respect to the making of statements in the course of pre-contractual negotiations survives the making of a written contract.
It is not disputed for the respondents that the applicants stood in a relationship of proximity to them such that a duty of care existed.
However the case for the respondents pleads that after delivery of the first copier, there could have been no reliance by reason of the applicants' knowledge and experience gained from carrying on its business.
Non-fraudulent representations
So far as the non-fraudulent representations are concerned the issues are as follows:
(1)Response time of service technicians (19.4 and 19.29)
It is contended this representation was made without any or any adequate enquiry concerning its accuracy, as proper enquiries would have revealed there was no basis for such a prediction. The applicants maintain the Cubitt Report shows a response time within 2 hours was not achieved and was not capable of being achieved. Examination of the Cubitt Report shows that such a response time was achievable. Ferguson's evidence provides further support for that fact. However, this representation has been found only to have been made as a statement of target and there were reasonable grounds for making it.
(2)Sales, likely profitability (19.5 and 19.24; 19.22 and 19.28)
It is contended these representations were negligent because they were based on the Whitford City demonstration which lasted over only a period of two and a half days. It is submitted this was an inadequate foundation for these claims. It has not been established that in the available reports of the respondents at that time there was any information to which the respondents should have averted. The product was new; experience was limited. These circumstances were known to the applicants. It was also known to the applicants that Canon was marketing machines, not advising on the conduct of a business. In my opinion this representation was not made negligently in the circumstances.
(3)Resale value (19.7 and 19.27)
Here the contention is the first respondent did not have any history of sales nor was there any research on which to base the representation. From evidence referred to in consideration of breach of collateral warranty, it appears Adolphe had no basis provided by Canon on which to make these representations. There was no inquiry or any reasonable grounds for them. In my opinion they were made negligently by Adolphe.
(4)Copy quality (19.10, 19.11 and 19.15)
The submission is the representations were made negligently because of the use of the words "brilliant" and "highest" without reservation, limitation or modification. In my opinion these were not unreasonable representations given the evidence that the CLC was the first colour copier on the market.
(5)Ease of operation (19.16 and 19.17)
It is contended this was made without foundation when adequate enquiries would have revealed it was necessary to make a service call virtually whenever maintenance was required. Further, the machine presented with a continual problem of a "phantom paper jam".
At the time representation 19.16 was made there was not the accumulation of evidence to establish most maintenance tasks required the attendance of a technician, either because they could not be carried out by an operator or because Canon required a technician to attend. The evidence shows that the requirement for the attendance of a technician arose subsequently as a requirement of Canon to ensure the machines were not mishandled during maintenance. In my view this representation was not made negligently when made to the applicants.
As to representation 19.17, there is no question the phantom paper jam became a problem with the machine. However, the question is whether the representation that such a jam could be cleared up right away was made negligently. The evidence relied on to establish this is evidence of the performance of the machine after the date on which the representation was made in the video to the applicants (19 July 1988). Ivey testified such problems occurred "all along" but addressed principally later experience in Sydney and Melbourne. Ferguson testified concerning such problems in January 1989. Pinkerton gave evidence phantom paper jams occurred in machines sold in Western Australia "from the launch of the copier". Manuel gave evidence of the problem reaching a crisis stage in Victoria in August 1989.
Reference to the records of Canon to the date when the representation was made by the respondents does not reveal the problem required the attendance of a technician. The knowledge of respondent folders show the problem was recognized in Canon. As a result an engineering change designed to meet the problem had been carried out in late December 1987. A modification had gone into effect at factory at the end of April 1988. In my opinion the folders do not disclose to 19 July 1988 that the problem of paper jams could only be cleared up by calling a technician rather than it being cleared up right away. In the light of the oral and documentary evidence I do not consider that at the time the representation was made it could be said it was made negligently.
(6)Service in every major centre (28.6(c))
The finding was the representation was in respect of every major "city" not every major "centre". In the terms in which the representation is found there is no room for application of the submission that Blandford knew it not to be so or that enquiries would have revealed it not to be so.
Pars19.23, 19.26, 19,25 and 28.6(d) do not require consideration here as they were found not to have been made out.
Fraudulent representations
So far as the representations alleged to have been made fraudulently are concerned the applicants submit that if made fraudulently, they were made negligently. In my opinion the evidence which establishes there was no basis for honest belief in representations 19.2 (copies between service calls) and 25.1 (copy quality "every time") establishes they were made without adequate foundation and consequently were made negligently.
I therefore conclude the following representations were made negligently:
(a)19.2: copies between service calls
(b) 19.7 and 19.27: resale value
(c) 25.1: copy quality "every time"
RELIANCE AND CAUSATION
The issues of reliance and causation arise in relation to:
· trade practices: 19.2, 19.7 and 19.27, 19.16 and 19.17, 25.1
· negligent misstatement: 19.2, 19.7 and 19.27, 25.1.
The issue of causation arises in relation to the breach of collateral warranty 19.2.
The law
The understanding of the law on which I rely is as follows.
(1)For the purposes of s82 of the TPA the question is whether acts done by the representee were done in reliance on the misrepresentation. If so, that will constitute a sufficient connection to satisfy the concept of causation for the Act as at common law: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525.
(2)The examination of the existence of the requisite causal connection for the purposes of the TPA will involve "investigation ... of the relationship between the offending conduct of a respondent, the acts or omissions of an applicant which are said to have been taken as a result and which are alleged to have been productive of loss, and the loss which is said to have occurred in consequence": Frith v Gold Coast Mineral Springs Pty Ltd (1983) 65 FLR 213 at 233.
(3)Ultimately the determination of whether a loss making decision was induced by a misrepresentation is a matter of judgment to be answered by reference to common sense and experience to the facts of each particular case: Frith at 233; Wardley at 525; Ricochet v Equity Trustees (1993) 113 ALR 30 at 36; March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at 515. The "but for" test provides preliminary guidance where negligence is in issue but is capable of giving rise to anomalies: March v Stramare at 515-9 and 522-4.
(4)Neither in an action pursuant to s82 of the TPA nor at common law is it necessary for the applicant to establish the conduct complained of was the only contributing cause to the loss or damage: Welcher v Steain [1961] NSWR 1136; Gould v Vaggelas (1984) 157 CLR 215 at 236; Ballantyne v Raphael (1889) 15 VLR 538. What must be shown is the misrepresentation was the real, essential, substantial, direct or effective cause of the loss or damage: Smolonogov v O'Brien (1982) 67 FLR 311; Milner and Ors v Delita Pty Ltd and Ors (1985) 61 ALR 557 at 572; Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd (1987) 75 ALR 271 at 280-1; Janssen-Cilag Pty Ltd v Pjizer Pty Ltd (1992) 37 FCR 526 at 530. Where it is arguable a party is induced to make a decision by a combination of factors including the misrepresentation it may be actionable assuming it is non-trivial: Ricochet at 36. In that circumstance the relevant question for the tribunal of fact to answer on all the evidence is whether the misrepresentation alone, or with or notwithstanding other things that accompanied it, was a real inducement, or was one of the real inducements to the plaintiff to do whatever caused his loss: Gould v Vaggelas at 250-1.
(5)The onus is on a plaintiff to show representations or one of them were a real or non-trivial inducement to engage in the relevant conduct: Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458.
(6)Knowledge of the true facts of a business may negate a finding of reliance or inducement: Corbridge v Bakery Factory Fun Shop Pty Ltd (1984) ATPR 40-493 at 45,688; Rumpe v Camrol Pty Ltd (1985) ATPR 40-522 and Mister Figgins v Centrepoint (1981) 36 ALR 23 at 60. Knowledge that a business is unlikely to be profitable or of the true position in relation to the misrepresentations are in this category: Gould at 227 and 236.
(7)The requisite causation will not be present where the losses or damage are the product of some independent, extrinsic, supervening or accidental cause, such as the folly, error or misfortune of those responsible for the conduct of the business: at 494. Poor management, increased competition or the loss of key staff are examples of such factors: Netaf at 494-5; Collins Marrickville v Henjo Investments Pty Ltd (1987), 72 ALR 601; ATPR 41-822 at 48,905. It is not therefore enough to show the losses were suffered in the conduct of the business. It must be shown they were reasonably incurred over such period as the business was reasonably continued in operation: Netaf at 507.
The initial representations as an inducement to the first agreement: (Claim par21)
From a consideration of the evidence appearing under this point in Appendix E I find the case for the applicants establishes reliance by Ivey and Ferguson on the relevant representations made by Adolphe and in the video (19.2 (service calls), 19.7 and 19.27 (resale value), 19.16 and 19.17 (ease of operation) in entering into the first agreement for the purchase of the first two machines, entering into the associated Maintenance Guarantee Agreements and commencing the business of colour photocopying by Imageland using two machines in Western Australia. In my opinion these representations were all real and material inducements to the applicants in so acting.
The initial and the further representations as inducements to the second and variation agreements: (Claim par27)
The applicants claim to have relied on the representations and warranties pleaded in pars19 and 25 of their claim (and hence in accordance with the findings on 19.2, 19.7 and 19.27, 19.16 and 19.17 as well as 25.1) in purchasing a further eight machines, entering into further Maintenance Guarantee Agreements and continuing their business. The purchases were said to be effected by the variation agreement on 26 September 1988. The evidence said to support the reliance is considered in Appendix E under this head.
The so-called variation agreement is pleaded as having being partly oral and partly written. So far as it is said to have been in writing it is said to be constituted by an undated letter from Ivey to Adolphe and the Maintenance Guarantee Agreements, Customer Order Forms and Canon Invoices particulars of which are set out in Table 1.
The undated letter to Adolphe expressed a confirmation of an order for "another eight Canon color [sic] copiers on order number 270096 dated 26 September 1988." Delivery sites were specified. Directions were also given for delivery of machine 242 (under the first agreement) to Armadale.
Order number 270096 was for one CLC machine at $40,940.00. The order was used in respect of 334, 242, 337 and 259. The remainder shown as referable to the variation agreement in Table 1 did not have any order number or had a different order number. Each of those machines was purchased for the same price. Ivey's evidence was the price had been discounted in view of the bulk order.
Ivey also testified the order form would not be regarded by Canon as committing the orderer until a site had been obtained and the machine keyed in. In addition he said in cross-examination the order forms did not mean much with Canon. Thirty forms had been signed up and sometimes two per machine. When he went to the Eastern States Canon cancelled all the order forms which had been signed and had him sign new ones. However, he regarded the signature of order forms on 3 February 1989 as a commitment of Instant Colour to proceed.
If Ivey's letter to Adolphe constituted a contract it was regarded by the parties as varied because Ivey neither acted nor considered he was bound. Purchases were effected pursuant to order forms signed at dates extending to June 1989. It is apparent from Ivey's evidence that if Instant Colour had not wished to proceed up until 3 February 1989 it would have regarded itself as able not to do so. I therefore do not accept the submission for the applicants that whether or not they were contractually bound they regarded themselves as being so bound. It is their attitude of mind in this respect which is relevant to the continuing effect of any reliance.
In my opinion the evidence under this head in Appendix E establishes the applicants materially relied on representations 19.2, 19.7 and 19.27, 19.16 and 19.17 and 25.1 in entering into the agreement concluded on 26 September 1988. Their state of knowledge at that time was not such as to preclude the finding of reliance.
The initial, the further and the continuing representations as inducements to the further purchases and leases and the continuance of the business: (Claim par42)
The applicants' case pleads they were induced by and placed reliance on the (proven) representations and warranties in pars19, 25, 28, 29, 31, and 32 of the statement of claim in doing the following:
(1)not returning the machines already acquired;
(2)entering into the purchase agreements for machines 406 and 414 on 22 March 1989 (it having previously been agreed to lease these machines around 24 February 1989);
(3)entering into a lease agreement for machine 381 on 15 April 1989;
(4)entering into a lease agreement for machine 443 on 28 April 1989;
(5)entering into a lease agreement for machines 507, 512 and 627 on 19 June 1989.
The applicants case is the continuing representations had the effect of picking up and continuing the initial and further representations in relation to the those later actions.
From the findings made on the application of the causes of action to each of the representations, none of the continuing representations have been found to transgress any causes. The case for the applicants therefore comes down to whether the initial or further representations had any continuing effect by being relied on after 26 September 1988 in relation to each of the above pleaded acts and were productive of loss.
In case it be the position the continuing representations are actionable, it is appropriate they also be tested in relation to reliance and causation. The continuing representations other than in relation to the drum were either ones on which reliance could not have reasonably been placed by the applicants or which, if relied on, could not have been productive of loss. The representation concerning training new technicians (28.2 and 28.5), made in October, was known for what it was worth to the applicants well before March 1989. The representation regarding damp paper (28.4), also made in October, had long been known to the applicants not to be the explanation of their problems. The representation in relation to service in every major centre (28.6(c)), another October representation, was found to be a representation relating to every major city and there was no evidence that was untrue. The representation concerning Canon's commitment to the machines and the first applicant (28.6(e)) was known to the applicants for what it was worth. These representations were incapable of being a real inducement to the applicants in their continuing conduct irrespective of the findings they were not made out in relation to the causes of action.
That leaves the pleadings concerning the new drum. The findings previously made on these were as follows:
28.5: "At the October meeting Stokes represented new parts were being developed which would improve the durability and performance of the copier."
28.6(b): "At the Burswood meeting on 27 October 1988 Blandford represented to Ivey and Ted Ivey that a new, improved photosensitive drum had been developed in Japan and would be available in Australia in May 1989 and would be the answer to the problem of colour quality."
29: "On or around 24 January 1989 Instant Colour received and read a letter from Canon under the signature of Richardson in which it was represented and warranted the new, improved photosensitive drum "was developed specifically to improve durability and therefore improve the overall performance and reliability of `the copiers'"
32: "On or around 7 March 1989 Heddle represented to Instant Colour that Canon had successfully tested a new, improved photo-sensitive drum in its Canon Colour Copy Shop in Sydney and it had done 2,000 copies without breaking down."
It will be recalled that the pleaded representations concerning the Sydney meeting (30, 31.2 and 31.5) were found not to have been made out.
It therefore becomes a question whether the representations established concerning the drum were relied on by the applicants whether they constituted a real inducement to the conduct of the applicants in entering into the above‑pleaded purchase and lease agreements. If so, there remains the question whether that conduct was itself causative of loss and damage.
The evidence for the applicants which is relied on to establish this reliance is the evidence arising after 26 September 1988. It is considered in Appendix E under this head.
To this the respondents plead Instant Colour took these (admitted) steps with actual knowledge of the true position and in reliance on a belief that colour copying was then a niche market. Further these steps are said to have been taken as a result of the knowledge and experience gained by it from carrying on business by use of all the machines subsequent to 1 August 1988. That is, the applicants embarked on expansion for reasons other than reliance on the representations.
The defence of the respondents pleads if the applicants suffered loss or damage it was not caused by the respondents. Additionally it is pleaded any such loss or damage was not the natural probable or reasonably foreseeable consequence of the contravention, misstatement or breach or was not reasonably within the contemplation of the parties. Further it is pleaded it was contributed to by the negligence of the applicants or was the result of the failure by each applicant to take reasonable steps to mitigate loss or damage: Frith v Gold Coast at 233.
I accept the submission for the respondents that, apart from the documentary evidence, very little evidence was led on behalf of the applicants concerning the role played by the representations in the various decisions claimed to have resulted in Instant Colour incurring losses. Relevantly these decisions were those leading to the expansion into the Eastern States. The case for the applicants did not with particularity identify the decisions made in the course of the expansion program or how any of the
relevant representations were relied on or causative in each of the decisions constituting the expansion. If the relevant decision was the general decision to expand Eastwards, it is not contended Canon was in the position of a business adviser to the applicants.
When asked why the decision had been made to expand to the Eastern States despite defects in the machine and frequent breakdowns, Ivey testified he had been to the Eastern States with Kodak and seen shopping centres with customer walk-through of 250,000 people a week. In Western Australia the business had been conducted in centres where through traffic was as low as 29,000 a week. This led to a belief on his part that sales would double or better in the Eastern States locations without regard to the performance of the copier.
For the respondents it is pleaded the applicants did not rely on the representations. Rather they saw a niche market to be filled and so purchased the copiers. This was not put to either of Ivey or Ferguson in cross-examination. Even if they perceived such a market, it was that which led them to seek information from Adolphe before making their decision to go into the copying business.
The initial and the further representations as inducements to the second and variation agreements (Claim par27)
Ivey's evidence was he read the Internal Sales Manual the night he received it and he also gave it to Ted Ivey. He was impressed by the reference in it to copies which would be "flawlessly crisp and clear every time" and the machine could make 35mm negatives faithful to the original. He said he did not doubt the truth of those statements. He relied on them. He denied this was a reconstruction by him. The statements were not new because he had heard them in the video.
So far as problems with the machines which they had were concerned, Canon kept repeating the problem would be solved. Ivey said he believed them.
Ivey testified that in September 1988 the Imageland Colour Laser Copier Brochure was used to advertise the Imageland business. A portion of it was written from the Canon brochure. This copying occurred because the applicants believed Canon's information. One page was copied from Canon's Internal Sales
Manual. His evidence was at that stage he believed the statements in it were going to be accurate.
Ivey's evidence was "they" believed Canon when told the problem would be fixed. He believed the problems with the machines were teething problems and the machines would soon start operating as represented.
Ferguson's evidence was Adolphe had given about 12 copies of the Internal Sales Manual to him between 12 and 19 July 1988. He read it. He and Ivey used it a lot to make other brochures. The Imageland Colour Laser Copier brochure had been prepared to show shopping centre managers in support of applications for space. His evidence was 99% of it came from a Canon brochure.
The brochure had been prepared around the time of the purchase of the copiers and were used until Ivey and he went to the Eastern States.
Quartermaine testified he was convinced after reading the Internal Sales Manual the copier was excellent. He felt confident about it and relied on it.
It is contended for the respondents that by September 1988 the applicants knew from their own experience and independently of any of the representations, what the position was concerning the performance and servicing requirements of the copiers and the profitability of a business using the copiers.
To this the applicants reply they had only been operating their business for approximately one month and so had no or little relevant experience to suggest the representations were not true. Additionally they had been reassured by Canon the problems would be fixed. Their use of Canon information in their brochure is indicative of their trust in and reliance on Canon's statements.
The initial, the further and the continuing representations as inducements to the further purchases and leases and the continuance of the business (Claim 42)
Evidence relied on for the applicants is as follows.
The effect of Ivey's evidence is that Blandford's representation at the Burswood meeting, the Richardson letter and the March 1989 representations (the latter of which has not been made out) had an effect on his mind and led him to believe in the future of the copier. He also testified his view about the chances of success in the Eastern States was they were very good. In May 1989 the takings on one day had been $4500 and he thought the business was good if Canon could get the machines right. However, he did not have anything to do with the daily figures.
Ferguson's evidence was only to the effect that the Richardson letter led him to believe Canon were going to fix the problems.
Quartermaine testified the Richardson letter caused him to consider the problems with the machine were about to be remedied. He believed the business was going to be a good one and he formed that view from reading the Internal Sales Manual and taking into account the Richardson letter. (He also testified concerning the effect of the Sydney meeting but the pleading on that meeting has been found not to have been made out).
Ted Ivey gave evidence he believed the representation made by Stokes at the October meeting. The Burswood meeting led him to think the future of the applicants' business was fine. The Richardson letter had given him confidence the problems would be solved.
Mincherton testified the Richardson letter made him realise there was a problem, which had been raised with Canon and acknowledged by it and it was going to do something about it. Subsequently he decided to invest funds in Instant Colour.
Argument for the applicants places reliance on evidence of Ivey and Ted Ivey of a threat to return the machines unless the problems were fixed, which was alleged to have been made at the Sydney meeting. That evidence falls as a consequence of the finding concerning the Sydney meeting.
For the applicants it is contended it was reasonable for them to rely on representations made by top ranking executives of Canon and, in reliance on those, to take delivery of further machines and expand their business.
Evidence relied on for the respondents:
(1) Evidence the applicants did not consider the new drum would solve all the problems
The evidence relating to representations concerning the new drum are set out earlier. That shows Ivey's only evidence of any representation to the effect Canon would solve the major problem with the machine was of a representation in November 1988 at the Burswood meeting (28.6(b)). His subsequent evidence was of a test drum performing over 2,000 copies without breaking down. For the respondents it is submitted this indicates Ivey's understanding of what Richardson (in the Richardson letter) and Blandford (at the Burswood meeting) had said was simply that a more durable drum had been developed which would improve the overall performance of the copiers. That is consistent with the finding made on this representation.
Furthermore, it is submitted as part of the respondents' case that Ivey's attempts to suggest he thought all problems with the performance of the copiers would be solved by the new drums did not stand up in cross-examination. There he acknowledged that the drum was not the only problem with the machine but maintained it was the major problem.
Ferguson did not give evidence that he thought the drum would solve all the applicants' problems. Rather he sought to rely on unpleaded representations to the effect the machines would be fixed. His evidence was that he always did the cashflows on the basis of the experience of what the machines produced.
Ted Ivey's evidence was to the effect he entered on expansion on the basis the machines were going to improve and work properly. He gave no evidence of the extent of the improvement he expected. No evidence was given by him of the particular respects in which the machines were not working properly or of any calculation of how he thought profitability would be affected. He executed a guarantee for Canon Finance dated 24 April 1989. He resigned as a director of Instant Colour in July 1989 without any complaint having been made or action taken in relation to any alleged representation. In the notes of the meeting of directors held on 3 July 1989 he attributed the company's problems to the fact it had outgrown its capital base, with no mention being made of any complaint concerning the performance of the copiers. His evidence concerning the representations has been set out in Appendix B in relation to paragraphs 28.5 and 28.6(b).
Quartermaine relied on the Richardson letter (which has been seen to be a prediction of improvement which occurred). He testified Heddle and Blandford said the machines were going to be fixed and their problems were going to be resolved; that mainly the drum was going to fix the problem. No such representation is pleaded at the February meeting. Additionally his evidence concerning his understanding of the extent to which the problem would be fixed shows it was to the extent of the Richardson letter: namely, the installation of a more durable drum and an improvement in the overall performance of the copier.
Quartermaine's belief that a new drum was to be installed in February 1989 provides no basis for a conclusion the assertions concerning the drum played any role in the ongoing expansion of the business well after the time for installation of the drum had passed. There is no plea and no evidence of any further assurances subsequent to the time when Quartermaine understood
the new drum was to be installed, and nor is there any evidence as to what Quartermaine thought was the true position after the time when he expected the problems to be fixed had passed. In June 1989 he signed the guarantee sought by Canon Finance which is inconsistent with any unfulfilled assurances having been made to him concerning an improvement in the performance of the copiers.
Mincherton's evidence was he relied on Ferguson telling him the machines would be fixed. He said he also relied on a letter shown to him by Ferguson stating Canon recognized the problem and was going to do something about it. I accept the submission for the respondents that Mincherton's reliance falls with Ferguson's failure to lead any evidence of reliance on any pleaded representation.
Mincherton also gave evidence of further assurances said to have been given to him by Ferguson and Quartermaine in August and September 1989. These are not supported by evidence of Ferguson or Quartermaine. It is not credible that Ferguson and Quartermaine would have been giving such assurances at that date given the nature of the applicants case.
(2) Evidence of continued acquisition and expansion in the belief, based on experience, that operations could be profitable notwithstanding copiers' service requirements and independently of any alleged representations.
Ivey testified that both in September 1988 and March 1989 the potential of the machine and the huge customer response overrode the breakdown problem. When asked in cross-examination whether the insufficiency of capital for the expansion into the Eastern States was the root cause of the demise of the business, Ivey said March, April and May 1989 had been months in which the business had been going very well.
Ferguson testified that although they had problems with the machine and its quality and its breakdowns, there were problems
with some of the sites but the business nevertheless looked exciting. When the order was placed on 26 September 1988 for another eight copiers (and therefore before any of the representations in pars28 to 32 were made) Ferguson thought the copiers were a great business because of the virtually unlimited customer support.
In a document prepared by Imageland in September 1988 the applicants projected sales of 5,715 copier per month as part of the cashflow. I reject Ivey's evidence that although he knew by that date the machines were being serviced far more frequently than once every 5 to 10,000 copies, he was being told more technicians would be trained to look after the machines. That is inconsistent with his evidence that the representations were made between October and November. It is also inconsistent with the pleaded date for them of early November.
In September 1988 Imageland stated in another brochure that it had proved the copier had enormous potential. In an application for assignment of lease dated 20 September 1988 Ferguson asserted the applicants had successfully operated the copiers in the retail market.
The three machines operated by the applicants prior to their decision to expand East had the following records. Machine 224 averaged 6115 copies per month to 29 September 1988; 5112 copies to 16 November 1988; and 4020 copies to 3 February 1989. Machine 203 averaged 7,900 copies to 29 September 1988; 5,990 copies to 16 November 1988; and 5013 copies to 3 February 1989. Machines 242 averaged 10,770 copies to 16 November 1988.
Imageland made projections of profit (apparently with reference to August and September 1988) independently of any representations as to price per copy or copies sold per month. Similarly on 5 January 1989 Imageland described expansion plans to Klikk Limited, a division of Kodak. These included projections showing the profitability based on actual figures.
A cash flow projection prepared around February 1989 contained a projection based on then present trading figures of a net profit of $114,600 per copier.
In March 1989 the Instant Colour brochure provided to Coles Myer stated it had proved the copier had enormous retail potential.
On 1 May 1989 Manuel stated in a memorandum to Ivey and Ferguson "we are showing the potential that we expected, to be excellent". On 15 May 1989 Manuel stated in a further memorandum to Ivey and Ferguson that "Northlands continues to impress with exceptionally high figures".
Ivey testified that between March and June 1989 the business was doing fairly well. Fergusons' evidence was also that the first 6 months of 1989 were very good and basically the business was showing the Eastern States was going to realise the potential.
In September 1989, when the applicants knew the true position in relation to the matters the subject of the alleged representations, they did not seek to return the copiers to Canon on the basis their purchase had been induced by serious misrepresentations. Rather Instant Colour applied for a permanent lease at Corio Village. In the application, Manuel projected income of $200,000 per annum. Performance of the copier was identified as "the point of difference" for its business.
In the same month Instant Colour supplied its brochure to AMP in which it was stated the copier had enormous retail potential.
In October 1989 the applicants recorded that they proposed to sell 5 shops to bring them back to 7 or 8 shops. This was included to give the company a strong capital base.
Draft advertisements for sale of Instant Colour businesses describe the business as having an excellent cashflow, as being
part of a nationwide chain and as making an ideal family business.
On 18 November 1989 Instant Colour wrote to Canon concerning its decision to sell off some of its sites. In the letter, which was signed by Ivey, it is stated there is very little future in colour copy shops because financial institutions were equating them to the video shop industry of 5 years ago. Instant Colour said this was the result of colour copy outlets being set up in poor locations without proper marketing, promotion, products or the ability to buy products at better than competitive prices. It stated the directors of Instant Colour were currently setting up a wholesale division in all States to supply all Canon Colour Shops with add on requirements. Under the heading "marketing and promotions" it was said Instant Colour was currently averaging $10 or better per copy sold "and this is because we use the Colour Copier as a vehicle to sell other very profitable lines...". Under the heading "buying power" it was stated "the large volumes of sales generated by our chain of stores has enabled us to purchase our products at extremely good prices". The letter then proposed a joint venture with Canon in which Instant Colour would supply all Canon colour copy shops with their add on requirements such as laminating, frames, jigsaw presses and other items as well as marketing information and ideas. No mention was made in the letter of any concerns about the performance or service requirements of the copiers or of any of the alleged representations. To the contrary Instant Colour demonstrated its confidence in the ongoing viability of colour copy shops using Canon copiers by the nature of the joint venture proposal.
Ivey testified in cross-examination that while this letter was written on the letterhead of Instant Colour, he was only the person introducing another company (Happy Snaps) which did do the deal with Canon. Ivey denied, despite the contents of the letter, that it was particularly his view that the attraction of a business such as Instant Colour's had been lessened by poor
operators having come into it. Rather it was an attempt to get Canon to come into the market with value added products.
Ferguson was not familiar with the proposal and Manuel had not discussed it with Ivey.
Blandford said Canon had proposed the joint venture idea and concluded it with people with whom Ivey was associated other than Instant Colour.
In my opinion the fact of the letter having been written by Ivey indicates a confidence by him in the viability of the businesses based on the copiers. Additionally I am not persuaded by his evidence in cross-examination that the views expressed in the letter did not represent his observations of the state of business at the time.
Finally, profit and loss statements prepared by Ferguson for dissemination among potential purchasers showed Instant Colour's copy shops could be operated profitably.
(3) Evidence the copiers could be operated profitably notwithstanding their servicing requirements
The performance of CLC334 was, at an average price of $7 per copy produced, to generate income of $18,277 per month during the period from 24 April 1989 to 26 June 1989 while requiring service calls to be placed every 799 copies; and $18,543 per month during the period from 26 June 1989 to 31 August 1989 while requiring service calls to be placed every 499 copies. These monthly figures show the copiers were capable of generating income at high levels (equating to a total income of about $215,000 per annum) over a sustained period from April to August 1989 notwithstanding the levels of servicing required. In fact, CLC334, notwithstanding its servicing requirements and the drum problem experienced with that machine, produced 28,529 copies during the 12 months to December 1989, or an income of $200,000 at $7 per copy. This compared to the annual income of the successful Lynch business operated with a CLC200 of $139,000. During the period from 19 December 1988 until 29 December 1989
CLC203 produced 27,428 copies, or an annual income at $7 per copy of $191,996. During the period from 20 December 1988 to 7 December 1989 CLC224 produced 23,873 copies, or an annual income at $7 per copy of $167,111. During the period from 21 December 1988 to 21 December 1989 CLC242 produced 30,697 copies, or an annual income of $214,879 at $7 per copy produced. During the 12 months to December 1989, CLC334 produced 28,529 copies, or an income of $200,000 at $7 per copy. During the period from 3 April 1989 until 23 april 1990, CLC381 produced 27,806 copies, or an annual income of $194,604 at $7 per copy produced. During the period from 28 February 1989 until 28 February 1990, CLC406 produced 51,051 copies, or an annual income of $357,357 t $7 per copy produced. During the period from 20 February 1990, CLC414 produced 20,479 copies or an annual income of $143,353 at $7 per copy produced. During the period from 1 May 1989 until 26 April 1990 CLC443 produced 39,857 or an annual income of $278,999 at $7 per copy produced. During the period from 26 June 1989 until 3 May 1990, CLC512 produced 24,163, or an income of $169,141 over a period of 9 months. During the period from 9 October 1989 until 17 May 1990 CLC571 produced 18,697 copies, or an income of $130,879 over a period of 7 months. During the period from 26 June 1989 to 18 May 1990, CLC627 produced 21,863 copies, or an income of $153,041 over a period of 11 months. Figures have not been included for CLC337 as there is data for a limited period only, or for CLC507 as it was generally either stored at Canon's finance or at a warehouse. Even so, CLC507 produced in excess of 3,000 copies per month during the period from June to September 1990. The performance of the CLCs 224,203 and 242 as set out above, which produced well in excess of 4,000 copies per month each during the latter part of 1988, notwithstanding this was the period problems were being experienced because of the short life of the second version drum, together with evidence of Ivey referred to above of occasions when 7,000 copies were produced in a month.
(4) Absence of any significant difference between any assumption as to the true position (based on the representations) and the true position
This evidence relates to the applicants' conduct during the period between August 1988 and 1990 and subsequently.
No calculations were made by the applicants of the extent of any anticipated improvement in the performance of the copiers and their servicing requirements. Further, no calculations were made concerning the effect of this improvement on the income that would be earned by the business.
There is an absence of any reference to any of the representations or any expectation of improvement in the performance or service requirements of the copiers in any of the documents prepared by the applicants in relation to their business.
As has been seen, the applicants continued to acquire copiers by purchase or lease. Machines 381 and 443 were acquired in April 1989; machines 507, 512 and 627 in June 1989; and in October 1989 machine 571 as well as the offer to purchase machine 469. These dates were well after October 1988 when the case for the applicants refers to the receipt of the first assurances from the respondents concerning the improvements to the copiers and well after the Richardson letter.
When the applicants came to sign the guarantees for Canon Finance in April, May and June 1989 they did not seek some reassurance the machines would be fixed before they became personally liable under a guarantee.
Instant Colour did not respond to statements in letters from Canon to Imageland on 19 June 1989, 26 October 1989, 25 January 1990, 26 April 1990 or 29 May 1990 expressing the hope it continued to be satisfied with its copiers and the level of after sales service.
On 18 October 1989 Ferguson discussed the financial situation of the Instant Colour with other directors. He phoned and discussed it with Ivey who made a diary note. Despite the serious concerns of these directors, no mention is made of any concerns about the performance or service requirements of the copiers or of any of the representations. The meeting was not followed by any complaint to Canon of misrepresentation. On the contrary, Ivey
wrote the letter of 18 November 1989 to Canon concerning the joint venture subsequently entered into by Happy Jacks.
On 26 July 1990 Canon commenced an action against Instant Colour for recovery of $21,124 for goods sold and delivered. This did not produce any response or complaint from Instant Colour and judgment went by default.
When Ivey left Sydney in early October 1990 he took all the records to the dump. His evidence was that when he threw away his records of defective copies he did not think they would have any future use. Ferguson also destroyed his records when he vacated an office in West Perth some months before October 1990. There is an inconsistency between this conduct and reliance by the applicants on the alleged representations.
While complaints were made by the applicants concerning the performance of the machines, no complaints were made to Canon of any misrepresentation concerning the levels of servicing or the development of a drum to solve all the problems. Blandford testified that in the course of discussions with Ivey concerning Instant Colour's financial difficulties he did not attribute those difficulties to machine defects or copy quality. Furthermore, Ivey had not complained to him about any misrepresentations (as distinguished from complaints about service). There is evidence to similar effect from Heddle, Lagos, Furey and Houghton.
Adolphe subsequently became associated with Ivey as a consultant and then fellow director.
I certify this and the preceding 144 pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson.
Associate:
Date:
APPEARANCES
Counsel for the Applicant: Mr N Moshinsky QC and
Mr E J Szabo
Solicitors for the Applicant: Blair Dancon & Co
Counsel for the Respondent: Mr R Macaw QC and
Mr D J Martino
Solicitors for the Respondent: Clayton Utz
Date of Hearing: 7 March to 28 April 1995,
30 October to 23 November 1995 and 6 February 1996
Date of Judgment: 28 August 1996
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