Tech Treat Pty Ltd v The Tank People Pty Ltd
[1998] FCA 1163
•21 SEPTEMBER 1998
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 1043 of 1997
BETWEEN:
TECH TREAT PTY LIMITED
APPLICANTAND:
THE TANK PEOPLE PTY LIMTIED
FIRST RESPONDENTSTEPHEN EWEN MCEWEN
SECOND RESPONDENTJUDGE:
WHITLAM J
DATE OF ORDER:
21 SEPTMBER 1998
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
The respondents, their servants and agents be restrained from selling a Domestic Wastewater Treatment System by the name of “Super-Treat”.
The respondents pay the applicant the sum of $38,266.
The cross-claim is dismissed.
The respondents pay the applicant its costs of the proceeding, including its costs of the cross-claim.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 1043 of 1997
BETWEEN:
TECH TREAT PTY LIMITED
APPLICANTAND:
THE TANK PEOPLE PTY LIMTIED
FIRST RESPONDENTSTEPHEN EWEN MCEWEN
SECOND RESPONDENT
JUDGE:
WHITLAM J
DATE:
21 SEPTEMBER 1998
PLACE:
SYDNEY
REASONS FOR JUDGMENT
In this proceeding the applicant claims relief for contraventions of ss 52 and 53 of the Trade Practices Act 1974 (“the Act”). It is accepted by the respondents that certain contraventions occurred. The second respondent is a director of the first respondent, and it is accepted that where contraventions occurred he was involved. The respondents do not oppose making permanent the interlocutory injunction which has been granted. However, the claim for damages is contested. Causation and quantum are in issue. The respondents also say that the applicant’s claim has been compromised by agreement between the parties and they cross-claim to enforce the alleged agreement.
Background
Since 1986 the applicant has manufactured and sold domestic sewage treatment systems known as "Super-Treat" systems. These systems are used in country homes to treat domestic sewage so that its bacterial content is sufficiently low for it to be disposed of, usually by means of spray irrigation. Since about June 1995 a distinctive feature of Super-Treat systems has been their use of the “venturi” principle. Instead of relying on air-blowers to aerate the sewage and so reduce its bacterial content, Super-Treat systems using the venturi principle cause air to be sucked into the system by moving the sewage around.
Except for a brief period from 14 June to 12 December 1995, at all times relevant to this matter, Super-Treat systems were sewage management facilities accredited by the Director-General of the NSW Health Department. Regulation 95B of the Local Government (Approvals) Regulation 1993 (NSW) prohibits a council approving the installation of any such facility not so accredited. Council approval for the installation of a sewage management facility is required by s 68(1) of the Local Government Act 1993 (NSW).
In early 1988 the first respondent became a distributor of Super-Treat systems in the Canberra/Yass/Queanbeyan area. The distributorship agreement between the applicant and the first respondent imposed on the latter responsibility "to provide sales effort, installation, equipment start up and ongoing service to clients procuring from [it] ‘Super-Treat’ systems". However, it did not preclude the first respondent from selling, installing and maintaining domestic sewage treatment systems other than Super-Treat systems.
The distributorship worked in the following way. The first respondent would purchase Super-Treat systems from the applicant. It would then sell those systems to its customers, install them and often maintain them. Some of the first respondent’s customers were the householders who used the sewage treatment systems provided. Others were the tradespeople who built the homes that incorporated the systems. The second respondent personally attended to the installation and maintenance of both Super-Treat and other domestic sewage treatment systems for the first respondent’s customers.
Contraventions
From approximately April 1994 to June 1998 the first respondent contravened ss 52 and 53 of the Act by selling and installing a number of domestic sewage treatment systems that were not Super-Treat systems while representing that they were. The systems that were misrepresented as Super-Treat systems were either systems of the second respondent’s own design (“McEwen systems”) or hybrid systems (that is, part Super-Treat and part McEwen systems). The evidence shows that the first respondent sold and installed thirty-two McEwen systems and thirteen hybrid systems during that time, making forty-five such systems in total. In coming to that figure I reject the applicant’s submission that the first respondent in fact sold and installed a total of forty-six McEwen and hybrid systems during this time. The applicant’s number wrongly includes three complete Super-Treat systems, those supplied to Doran, Osburn and “the Bungendore vet”. It also excludes a hybrid system supplied to Godtschalk in August 1994 and a McEwen system supplied to Bryce on an unspecified date but accepted by the respondents as falling within the relevant period. In summary, the figure submitted by the applicant includes three systems that it should exclude and excludes two systems that it should include. The correct number is forty-five McEwen and hybrid systems.
The applicant submitted that each of the McEwen and hybrid systems sold and installed by the first respondent from April 1994 to June 1998 had been misrepresented as a Super-Treat system. It was said that every such transaction involved a contravention of the Act.
Initially the respondents contended that the Act had only been contravened if the first respondent had: (1) provided a customer with a quote for a Super-Treat system but actually installed one of the other systems; or (2) described one of the other systems as a Super-Treat system in council documents. Ultimately, however, the respondents seemed to accept that most of the McEwen and hybrid systems sold and installed by the first respondent between April 1994 and June 1998 were misrepresented as Super-Treat systems.
Nonetheless, the respondents did offer two reasons for finding that the number of misrepresented systems is something less than the total number of McEwen and hybrid systems sold and installed in that period. First, they said that customers who did not plan to seek council approval for their systems would not necessarily have been misled or deceived. Such people may merely have asked for domestic sewage treatment systems and received them. Secondly, the respondents claimed that in a couple of cases the second respondent’s relationship with customers meant that there was no need to misrepresent the systems to them.
However, with two exceptions, I am satisfied that all the McEwen and hybrid systems sold and installed by the first respondent from April 1994 to June 1998 were misrepresented as Super-Treat systems for the following reasons. Importantly, the first respondent advertised prominently as a seller, installer and repairer of Super-Treat systems. It never advertised the McEwen or hybrid systems. In addition, neither the McEwen system nor the hybrid system was ever accredited by the Director-General of the NSW Health Department. Permission for the installation of those systems could not, therefore, have been obtained from local councils. And, finally, the first respondent’s quotes and council documents provide clear evidence of McEwen and hybrid systems often having been misrepresented as Super-Treat systems. I readily infer that this happened in other cases too.
The two exceptions to this conclusion are the systems that the first respondent sold to and installed for Mr Daniels and Mr Otten. Mr Daniels was a neighbour of the second respondent and more than likely contracted with the first respondent because of that relationship. On balance therefore, I am not satisfied that he believed that he was receiving a Super-Treat system. Mr Otten required a custom-made system and for that reason was explicitly informed that he was not getting a Super-Treat system. Although Mr Otten’s council application form for the installation of a septic tank refers to “Super Treat or Enviro Cycle” that form was signed on 2 November 1993, more than two and a half years before his system was actually installed by the first respondent.
On the basis outlined, I find, therefore that the total number of hybrid and McEwen systems misrepresented by the first respondent as Super-Treat systems from April 1994 to June 1998 was forty-three. Those misrepresentations contravened the Act.
The Applicant’s Loss
Relying on s 82 of the Act, the respondents submitted that the applicant had only suffered loss in respect of the McEwen and hybrid systems that were installed from April 1994 to June 1995. They argued that after June 1995 the first respondent would not have sold or installed Super-Treat systems because those systems operated on the venturi principle and could not cope with the needs of large households. In short, it was said that after June 1995 the applicant suffered no loss because, even if there had been no misleading and deceptive conduct, the first respondent would not have sold Super-Treat systems to its customers.
However, it is clear that the first respondent’s customers intended to purchase Super-Treat systems. In fact, that is what they thought they were doing and only the first respondent’s misleading and deceptive conduct stopped them from carrying through with their intention. It is no answer to this to say that, if it had not engaged in the unlawful conduct, respondent would have found some other way to stop people buying Super-Treat systems. The fact is that the first respondent’s contraventions meant that people who intended to purchase Super-Treat systems did not. In this way those contraventions caused the applicant to suffer loss.
Nevertheless, the number of the applicant’s lost sales is not quite the same as the number of systems that were misrepresented as Super-Treat systems. Thirteen of those systems were hybrid systems. Since one Super-Treat system was used in every two hybrid systems, those thirteen systems represent only six and a half lost sales for the applicant. Over all, therefore, the applicant lost thirty-six and a half sales of Super-Treat systems. The parties agreed that the applicant would have received $800 for each of these systems. That makes a total of $29,200 in lost sales. It was also agreed that any interest should be calculated according to the average of the periods of time that have elapsed since the applicant lost each sale. That average period is approximately 2.7 years. It seems to me that a fair rate of interest over that time is 11.5% per year. Accordingly, I calculate the applicant’s damages in the sum of $38,266, which includes an amount of $9,066 for interest.
The Alleged Settlement Agreement
However, the question remains whether any damages claim has been compromised by an agreement allegedly made between the parties on 18 March 1998. On that day, there was a meeting between the second respondent and Mr Mar and Mr Bell, who were representing the applicant. The meeting took place at the Paragon Café in Goulburn and lasted from about 9.30am to 1.30pm. For most of that time Mr Bell was absent and the meeting was essentially between the second respondent and Mr Mar.
According to the second respondent, after some preliminary discussions he offered on behalf of the first respondent to pay the applicant $28,500 to settle their dispute. When Mr Mar indicated that this was not enough, the second respondent says he also agreed to the continuation of the distributorship agreement between the first respondent and the applicant. Mr Mar accepted this. The second respondent claims that he and Mr Mar next discussed how the $28,500 would be paid, agreeing that $5,000 would be paid once their agreement had been reduced to writing with a further $1,000 paid per month after that so that the whole sum would be paid within 24 months. In addition to the $28,500 the second respondent says it was agreed that the applicant’s scale legal costs would be paid. Indeed, he contends that this was his suggestion and that Mr Mar accepted it.
At the conclusion of this conversation the second respondent says that he told Mr Mar he wanted to talk to his wife about the proposed agreement before committing the first respondent to it. As soon as he had parted company with Mr Mar and Mr Bell, the second respondent called his wife and she approved the terms of the agreement. The second respondent then called his solicitor and said he would fax the details of the agreement to him when he got home. On the evening of 18 March, the second respondent says he telephoned Mr Mar to confirm the agreement. Mr Mar asked him also to agree to indemnify the applicant against customers who might sue it for failures in domestic sewage treatment systems caused by the first respondent not supplying genuine Super-Treat systems or parts. The second respondent says he accepted this and that the agreement was finalized.
Mr Mar’s account of the events of 18 March is little different from that of the second respondent. However, once it had been agreed that the first respondent would pay the applicant $28,500 and continue as its distributor, Mr Mar says he told the second respondent he also wanted his “legal expenses paid”. He claims to have no recollection of the word “scale” being used in his conversations with the second respondent on that day. The only other point on which Mr Mar’s version of 18 March differs from the second respondent’s is that he says the method by which the $28,500 would be paid was discussed by telephone in the evening and not at the Paragon Café during the day. Like the second respondent, Mr Mar thought there was a legally binding settlement agreement between the parties after the telephone conversation on the evening of 18 March.
In cross-examination, Mr Mar was questioned on a further telephone conversation he had with the second respondent about four of five days later, after his solicitors had received a letter from the respondent’s solicitors referring to payment of “scale legal costs” as part of the settlement agreement . Mr Mar said he called the second respondent because he did not think that scale legal costs were part of the agreement made on 18 March and he was offended and upset to see that term in the letter from the respondents’ solicitors. He refused to make the applicant party to the agreement if only its scale legal costs would be paid.
The discrepancies in the two versions of their conversations cannot easily be reconciled. The second respondent said that he told his wife that the agreement included payment of the applicant’s scale legal costs and that he recorded the agreement in those terms in his day book for 18 March. However, none of this shows that he actually used the term “scale legal costs” on 18 March. In cross-examination, the second respondent was asked what scale legal costs meant and when he had first heard that term. His answers to these questions are ultimately unhelpful in deciding whether he used the term.
Given the certainty with which both men adhere to their respective recollections of the conversations that took place between them on 18 March, the most likely conclusion is that they were at cross-purposes. If the second respondent spoke of scale legal costs, Mr Mar did not hear him say so. I am quite satisfied that Mr Mar did not agree to such costs. Both men seemed to have had different understandings of the meaning of scale legal costs. But Mr Mar would not have agreed to such costs.
On that basis, even though both the second respondent and Mr Mar thought they had made a legally binding agreement to settle this proceeding, in fact they had not. The second respondent may have offered on behalf of the first respondent to pay the applicant’s scale legal costs, but Mr Mar accepted what he thought was an offer for payment of the applicant’s actual legal costs. They were never ad idem. The respondents have failed to establish what was said so as to show an agreement ever came into existence.
Conclusion
The interlocutory injunction will be made final. The respondents will be ordered to pay the applicant the sum of $38,266 and its costs of the proceeding. The cross-claim will be dismissed with costs.
I certify that the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam
Associate:
Dated: 21 September 1998
Counsel for the applicant: G P F Rundle Solicitors for the applicant: Brierley Hodge & Co Counsel for the respondents: M J Lawler Solicitors for the respondents: Gillespie-Jones & Co Dates of hearing: 17-19 June 1998 Date of judgment: 21 September 1998
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