Technilock (Aust) P/L & Ors v Mondami P/L & Anor No. Scgrg-96-1859 Judgment No. S19

TECHNILOCK (AUSTRALIA) PTY LTD & ORS

MONDAMI PTY LTD & ANOR
[1999] SASC 19

Civil

Millhouse J This case is about security locks, Rielda locks, locks for doors, safes, vending machines, tills and so on. Whether they were any good. Who said what to whom about them. Whether anyone acted on what they were told.
The principal cause of action pleaded is pursuant to s52 of the Commonwealth Trade Practices Act and to s56 of the State Fair Trading Act:
Trade Practices Act:
“52    Misleading or deceptive conduct
(1)A corporation shall not, in trade or commerce,      engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
(2)Nothing in the succeeding provisions of this         Division shall be taken as limiting by implication the generality of subsection (1).”
Fair Trading Act:
“Misleading or deceptive conduct
56.    (1)    A person shall not, in trade or commerce, engage in
conduct that is misleading or deceptive or is likely to mislead or
deceive.
(2)    Nothing in the succeeding provisions of this Division shall be
taken as limiting by implication the generality of subsection (1).”
The Trade Practices Act relates only to corporations of which the first defendant is one. The Fair Trading Act relates to persons and so to the second defendant.
Before launching into the facts and making findings I remind myself of the original exposition of s52 by Fox J in Brown v Jam Factory Pty Ltd (1981) 53 FLR 340 @ 348:-
“Section 52 (1) is a comprehensive provision of wide impact, which does not adopt the language of any common law cause of action. It does not purport to create liability at all; rather does it establish a norm of conduct, failure to observe which has consequences provided for elsewhere in the same statute, or under the general law. The possible width of its operation and the fact that it may overlap other sections ... is recognised by sub-s. (2). In my view effect should be given to the ordinary meaning of the words used. They should not be qualified or (if it be possible) expanded, by reference to established common law principles of liability. At the same time, known concepts, such as those concerning the torts of deceit and passing off and the analyses made of them over the years, may prove helpful in deciding a case under s52(1). It does not matter that a representation constituting ‘conduct’ relates to a future event, or that what is said may not amount to a warranty. The view has not been taken that ‘conduct’ necessarily involves a continuing course of conduct, or of repeated events, or of conduct known to the public or a group of public ... Intention is not a necessary ingredient ...”
Apposite also are some passages from the judgment of Doyle CJ in Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd (1997) 69 SASR 288:-
“... it is now beyond question that silence or nondisclosure can be misleading when combined with other factors such as the provision of incomplete information, or half truths, or the failure to correct a representation which has become false. Section 52 plainly contemplates that misleading and deceptive conduct may be constituted by a factual matrix consisting of silence as well as the paradigm situations concerned with overt activity.” (@ 296)
“Analysis of the authorities leads me to the conclusion that the appropriate inquiry in this case is whether the conduct of Software, considered as a whole, was misleading and deceptive.” (@ 297-298)
As in Software v Roadrunner Couriers, so here, I have to consider whether the words and actions of the defendants - really of the defendant Bacchiaz who acted as agent for Mondami - considered as a whole, amounted to deceptive and misleading conduct.
Mr John Bacchiaz (sometimes known as Bacjak), the second defendant, is a businessman who lives in Queensland. He is the principal in the first defendant Mondami Pty Ltd. The second and third plaintiffs were in the early nineties friends of his. Another gentleman, Mr John McNicholl, originally a plaintiff was a principal actor in the events which have brought the parties to court.
Bacchiaz through Mondami was in touch with a company in Italy, Rielda srl which was in the business of the manufacture of security locks, or more precisely, the cylinders which fit into the locks and are the operative part of them. The principals in that company were also friends of Bacchiaz.   Rielda had developed what it claimed to be a new kind of lock and eventually entered into a “contract of agency” with Mondami appointing Mondami:-
“... general and sole representative for the whole territory of Australia and New Zealand for the following products:
-       RIELDA cylinder locks with interchangeable key
-       any other lock/key that might be produced by RIELDA.”
Other relevant sections of the contract:-
“Section 9
For any demand that MONDAMI would like, and both parties agree that it would be in their best interest, to be negotiated directly between RIELDA and the end customer located in the said territory, MONDAMI will be paid a commission of 15% of the net price ex factory ...
Section 13
MONDAMI agrees to buy from RIELDA goods for a net value of at least 500,000 Australian dollars during the first year of sole agency starting from the date of this contract and every following year a progressive increase of 25% will be applied up to the amount of 2,000,000 Australian dollars.
Section 14
Should MONDAMI not achieve the minimum purchase set for the first or any following year, RIELDA reserves the right to terminate the contract of sole agency.
...
Section 16
This contract is valid for a period of 5 years starting from the date of execution and will be deemed to be tacitly renewed for the same duration if one of the parties does not give advice of termination to the other by registered letter at least 6 months before its expiry date.”
The contract is dated by both parties '22/07/1994' ”.
Having now mentioned Messrs Bacchiaz, Keimeier, Tomkins and McNicholl all of whom gave evidence, I should say whom I found credible and whom I do not. I prefer the accounts of events given by Messrs Keimeier, Tomkins and McNicholl to that given by Mr Bacchiaz. I formed quite a poor opinion of Bacchiaz, of his reliability, indeed of his honesty, for reasons which may become clear as I proceed. For the moment I mention a piece of Bacchiaz’ evidence which sticks most vividly in my memory and which, apart from anything else would be enough to discredit him.
The plaintiffs called an expert in locks, Mr Maxwell Colin Cherry. Mr Cherry some twelve months before trial made a written report which, in accordance with the Rules, was given to the defendants. While Mr Cherry was challenged (unsuccessfully) in cross-examination, the defendants had conceded his expertise and had produced no answering report nor did they attempt to call expert evidence to rebut Mr Cherry. Yet in cross-examination Bacchiaz - no attempt had been made to qualify him as an expert - had the gall to say this:-
“AExcuse me, let me just reply to His Honour. After I heard the first half a dozen statements by Mr Cherry, to be honest with you, I didn’t take very much notice of what he was saying, because, in my opinion, he is not an expert at all.
QWhat do you think of Mr Cherry?
AI don’t know and I have got no comment to say what he is, but if I wanted to know something about this lock, or any other lock, I would have gone to NATA and get a proper analysis accepted by every engineering or every standard in the world today.
QYou had that opportunity, didn’t you?
AI don’t have to. Why would I go to NATA? I don’t need to go to NATA?
QBecause you got a copy of Mr Cherry’s report about 12 months ago, didn’t you?
ABut I don’t need to go. Why would I go to NATA? Why would Technilock go to NATA?
QDid you read Mr Cherry’s report when it was provided to you by your solicitors about 12 months ago?
AI don’t know whether it was 12 months ago, and I don’t know if I read it.
HIS HONOUR
QAnyway, your impression of Mr Cherry here in the courtroom was that he didn’t know much about it.
ACorrect.
...
A... when I got Mr Cherry’s report, I knew that he didn’t know what he was talking about and that he didn’t understand the system.”
I believe hardly a word Bacchiaz said unless he be corroborated by other evidence. Certainly anything he said in conflict with the evidence of the plaintiffs or their witnesses I do not rely on. I did not find Bacchiaz a credible witness.
The accounts given by the three other gentlemen, perhaps while differing in some details and in emphasis, were substantially the same. Each seem to me to be honest and reliable in what he said. The evidence of each was credible. Whenever there is a conflict between their evidence and that of Bacchiaz, I prefer theirs. Even if only the word of one had been pitted against that of Bacchiaz, on demeanour and general impression, I would have preferred it to that of Bacchiaz. As it is there were three words against his. The account which I now give is based on the evidence of the plaintiffs and their witnesses and amounts to my findings of fact.
From late 1991 Bacchiaz, no doubt anticipating some such agreement as was made between Mondami and Rielda on the 22nd of July 1994, had been looking for backers for the Rielda locking system in Australia. Both Keimeier and McNicholl, although unknown to each other, were Bacchiaz’ personal friends. They and their wives used to stay with Bacchiaz and his wife at the Bacchiaz house.
Bacchiaz approached each separately. He shewed them samples of locks and invited them to put in money. This is what each said Bacchiaz told him.

McNicholl:

“Q.... ... Can I ask you to tell His Honour what it was that Mr Bacchiaz said to you on the subject of the Rielda locking system which he was demonstrating?

A The qualities that appeal to me, you mean?
Q Yes.
A...... He demonstrated the locking system to me and the qualities that stuck out in my mind were the number of combinations available with the locking system.
...
A...... In respect of what happened then he said to me that it was unpickable, it had a number of combinations which he said was in the millions, and it was anti drill. That’s the gist of what I believed appealed to me at the time about the system.
QOn the topic of the number of combinations ... what was the gist of what Mr Bacchiaz said?
A...... Only as what I said earlier, and that is that it was in the millions, that’s what he said.
HIS HONOUR
Q...... It was what?
AIn the millions, combinations.
Q...... You have told us he said it’s unpickable, the combinations are in the millions, and it’s anti drill. Did he say anything else or mention any other qualities?
AIt’s hard to recollect at this time, but I guess the thing that appealed about the locking system itself was the fact that it was interchangeable. That was the major point - the selling point, really.
Q...... Interchangeable, with, with other locks?
AInterchangeable keys, the cylinder remained the same but you could change the keys.”

Keimeier:

“QCan you explain, ... how it was that Mr Bacchiaz introduced you to the working of the Rielda lock?
A...... He said, ‘These locks aren’t just ordinary locks, these are high security locks, and I’ll show you how they work’ and he showed me how they operate, with a slave key, and then the change key, and then rekeying them with another change key.
QDid he say anything to you about who or what was Rielda?
A...... He said it is an Italian company who produce those locking systems, and he says that he has the Australian and the world rights outside of Europe.
...
A...... ... he showed me how they operate, and he told me the features of them, and whether it was at that time or at a later stage, he did tell me that he was part of Rielda.
QYou said that he went on to explain some features of the lock. What did he tell you?
A...... He started to explain the way the system operates, and that there is five million combinations in these systems, anti-pickable, and anti-drill, and also, he said ‘These cylinders can be fitted into, or retro-fitted into existing Lockwood or Whitco hardware’.
QDid he say Whitco or something else?
A...... Whitco.
QThe issue of the combinations, the five million combinations, prior to this time did you know anything about locks?
A...... No.
...
Q...... Were you impressed by the statement that the lock had the potential for five million different combinations?
AI was very impressed with all the statements that Mr Bacchiaz made.
Q...... You mentioned that one thing that was said was that the lock, I think you said was anti-pickable?
AThat’s correct.
Q...... How was it that you remember Mr Bacchiaz explaining that to you, do you remember how it came up?
AIt just came up in general conversation, when he explained to me what they can do and what they cannot do.
Q...... Did you believe that statement of Mr Bacchiaz’?
AI had no reason not to.
Q...... You said, also, that you were told that the Rielda lock was anti-drill. Again, do you remember how that came up, or whether anything else was said on that subject?
ANot initially, no. There were things said at a later stage, but initially he just explained the features of the locking system.”

Tomkins comes into the story twelve months or so after Keimeier and McNicoll. Bacchiaz has told him much the same:-
“A He told me it was a new concept, that they had been selling a lot in Europe - Italy and Europe, it was a security system, it was undrillable, it was almost unpickable.
HIS HONOUR
Q He said it was undrillable and almost unpickable?
A...... Yes. That it was a new security system, like he said it was selling a lot in Italy and in Europe and now he had the - his company was getting involved in distributing - or had the distribution rights to sell this product in Australia.”
Tomkins said Bacchiaz went on to say that Technilock was just about to receive big orders from Telecom, Coca Cola and others.
In summary Bacchiaz separately and at different times told McNicholl, Keimeier and Tomkins that the Rielda locks had all or some of these characteristics-
. unpickable
. anti-drill
. millions of combinations.

Yet the evidence of Mr Cherry was to the effect that the locks that he tested did not have these characteristics.
Unpickable:
“Q Did you pick the Rielda lock as part of you examination and report?
A Yes, I picked it and other people picked it as well.
Q...... Did you find any design feature of the Rielda lock which meant that could be said that it was designed to resist easy opening?
AOn the contrary, the design of the lock actually assisted you in picking it.”
Anti-drill:
“QWhat did you find on your own observations of drilling the Rielda?
A...... I met no resistance whatsoever with mild steel drill bits, common drill bits for drilling. I used a battery drill, it was the same as any other cylinder.
QWhy do you use a battery drill?
A...... It has a stored battery system, it doesn’t have as much torque as an electric drill.
QYou used both?
A...... No, we used the battery drill only.
QAnd found no particular resistance?
A...... No, it didn’t resist.
QIn summary, was there any feature, either of design or construction, that you detected in the locks that you examined which would enable one to say that the locks that you looked at exhibited some kind of design or component feature enabling them to resist drilling?
A...... No, not the locks I examined.”

Millions of combinations:

"Q.... You expressed the view [in your report]: ‘It follows that there can only be 12,288 effective permutations?
AThat’s right.
...
QIn your view is there any relevance in the fact that the Rielda system has a maximum of only 12,300 theoretical permutations compared to another system that has 5 million?
A...... Yes, there certainly is. In a large installation where there is thousands of locks the chance that you would repeat the permutation is high so then the chance that one would enter an area they weren’t supposed to enter would be possible and therefore negate the security of that area.
QCan you give an example of the number of individual locks that might be needed to be part of a large installation, say a prison?
A...... A prison like Pentridge would have five thousand locks in the whole installation.
QIn your view would an average domestic user care about the difference between 12,000 and 5 million?
A...... Some may, some may not. Depends on their expectation of security.
QWhat about the client that has a requirement for high security?
A...... They would certainly be concerned about that.”

There were several other ways in which the locks which Cherry examined did not live up to the claims that Bacchiaz made to the plaintiffs. There is no need for me to mention them all.
I am quite satisfied that the defendant Bacchiaz both for himself and as agent for Mondami, made claims about these locks which were false and misleading. The overall impression which he gave was of a revolutionary high security system which would put locksmiths out of business - the words he used to Keimeier were "Don't go to locksmiths with any cylinders or anything like that, and don't show them, because it is going to put them out of business" - and would be a financial gold-mine. Bacchiaz' claims caused the plaintiffs to act to their eventual detriment.
At the end of 1993 Keimeier and McNicholl decided to put money into the venture. Bacchiaz set the cost of the Australian marketing rights at $500,000. A shelf company was renamed Technilock (Australia) Pty Ltd and utilised for the purpose. Both Keimeier and McNicholl became directors and shareholders. Keimeier was managing director as McNicholl wanted to take no active part in running the venture. Keimeier turned out not to be a very good manager and McNicholl was obliged to take a more active role than he had expected. At Bacchiaz’ suggestion Mr Roland Harrison was employed as sales manager. Keimeier put in altogether $186,030 and McNicholl $255,000. These figures were calculated by Mr Hugh Lachlan McPharlin, chartered accountant, called by the plaintiffs.
About 12 months later Mr Tomkins when he became part of the venture, put in a total of $171,000 (again a figure calculated by McPharlin).
On the 16th of February 1994 Technilock ordered from Rielda 5,000 locks. The order was prepared for Technilock by Bacchiaz. Payment was to be by letter of credit. A difficulty arose. Keimeier and McNicholl were not prepared to open a letter of credit until they had a firm agreement with Mondami through Bacchiaz. Bacchiaz was insisting on a performance clause in the Heads of Agreement which he presented to Keimeier and McNicholl. The latter were not prepared to sign the Heads of Agreement with the performance clause.
I can understand why. The Heads of Agreement had in it these clauses:
“WHEREAS: A) MONDAMI holds the exclusive rights to distribute
in Australia, in respect to the RIELDA LOCKING
SYSTEM, in accordance to Rielda Australian patent Number 583960, in the name of RIELDA SERRATURA and

.............................................. B) MONDAMI is desirous of granting TECHNILOCK

exclusive rights to distribute in Australia the RIELDA LOCKING SYSTEM aforesaid; and ...

[In 1994 the patent had until November 2002 to run so the effect of the clause was to give exclusive rights at least until November 2002.]
3.     “MONDAMI covenants with TECHNILOCK that the date of
execution of these presents it has full and unencumbered power right and entitlement to enter into this agreement and that it (MONDAMI) is capable and legally able to fulfil on its part all of the covenants herein contained.
...
5.     This agreement is conditional upon TECHNILOCK
achieving:
a)     That within 90 days from 2/1/94 the customers must be
supplied with stock of, which they may require.
b)    That TECHNILOCK shall achieve by end of first year at
least A$1,500,000 (one and a half million dollars Gross
Sales) and by end of second year A$2,500,000 (two and a
half million dollars), and at the end of third year thereafter minimum (five million dollars) per year."

As early as 14 January 1994, Mr Keimeier and Mr McNicholl were shewing concern about the performance clause 5b. In a fax on that date they wrote to Mr Bacchiaz indicating that the clause should be removed. They expressed the view that they saw the first 12 months of the business as a time to develop long term strategies and get a feel for the market. This same sentiment was expressed in a fax dated 9 February 1994.
In a letter dated 15 March 1994, Bacchiaz refers to “in accordance to our mutual agreement reached in Brisbane …”. Included in this letter was a demand that a letter of credit be opened. However the so-called mutual agreement still contained the offensive performance clause which had consistently been rejected by Keimeier and McNicholl. In response to the first letter McNicholl wrote to Bacchiaz on 20 March 1994 that the Heads of Agreement was far from satisfactory and required further revision. With particular reference to the performance clause McNicholl said “at no stage did we ever agree to these stipulations”.
On 6 April 1994 there was a meeting in Brisbane. McNicholl, Bacchiaz and Jennifer Parker were present. [Jennifer Parker was a person associated with Bacchiaz in business.]   The next day Bacchiaz wrote to McNicholl and Keimeier enclosing Heads of Agreement. This agreement still had a performance clause 5b, though in a slightly different form as it was conditional upon Technilock sales being equal to 60% of the sales as predicted by KPMG (the accountants who had made sales projections). However, the clause still said “If this is not achieved, MONDAMI shall be entitled to terminate this agreement”. Keimeier and McNicholl did not sign this agreement. McNicholl, in cross examination denied that he had ever agreed to such a clause:
"Q.    What I put to you is that the performance clause that
        Mr Bacchiaz was seeking in that correspondence
and to which you had previously objected was agreed to by you at the meeting on 6 April.
A. That is entirely incorrect."
There is another “Heads of Agreement” dated this 7th day of April 1994 which has been signed by McNicholl and Bacchiaz. This Heads of Agreement also has a performance clause, 5b, though it has been amended to read “If this is not achieved - MONDAMI shall be entitled to renegotiate this agreement." Possibly the parties did agree to some form of this Heads of Agreement but not to any form put forward by Bacchiaz.
Mondami was purporting to give Technilock distribution rights until 2002. Yet, because of the performance clause in its own agreement with Rielda, Mondami had an arrangement with Rielda for five years from 22 July 1994 - and that could be cancelled (as it was on 22 July 1995) if Mondami did not reach the sales target set. No wonder Bacchiaz was so insistent on a performance clause for Technilock! Until October 1994 only $170,000 worth of stock had been purchased by Technilock pursuant to order 20. A subsequent order prepared by Bacchiaz (but not agreed by Keimeier or McNicholl) was for 45,000 units worth $673,125. This order would obviously have met Mondami's performance clause which required it to purchase $500,000 worth of stock by 22 July 1995. In October 1994, Technilock were simply not in a position to order so much stock. It did not have the organisation to sell so many locks. It was struggling to get established. Bacchiaz must have known this. McNicholl took it into consideration when he cut the order down to 10,000 units, worth $17,708.33. Bacchiaz' motivation for this order was for his own benefit.
Keimeier and McNicholl knew nothing of Mondami's obligations to Rielda. Indeed both Keimeier and McNicholl believed that Bacchiaz and Mondami were in effect one with Rielda. It was the impression Bacchiaz gave them. Keimeier in cross-examination said this:-
“A... all orders and all correspondence had to go through Mondami. We had no direct contact with Rielda and we were told that at the outset that Mondami and him is Rielda.”
McNicholl also in cross-examination:-
“Q.... What I’m putting to you is that, at least by mid 1994, you knew how to contact Rielda, if you chose to do so?
AIt seems to me to indicate that but the instructions we were given was not to talk to Rielda. ‘I am Rielda’.”
Keimeier, McNicholl and Tomkins all said that had they known the true position between Rielda and Mondami they would not have been prepared to invest in the project.
Keimeier:
“QDid you know that Mr Bacchiaz had performance targets that he had to meet with Rielda or his rights could be terminated?
A      No.
Q...... If he told you that at this stage what influence would that have had on your conduct?
A      We wouldn’t have entered into the heads of agreement at all.
...
Q...... If, on 22 July 1994, Mr Bacchiaz had given you a copy of the agreement that he signed that day, with Rielda, what would you have thought about that?
A      I would have went and seen Piper Alderman.
Q      Why would you have done that?
A...... Because we have already paid him $300,000. Now he is telling us we have only got one year to make those targets, and even if we do make those targets, we have only got four years after that, and it was never intended that way.
QDid you know that, in fact, Rielda did terminate Mondami’s agency a year to the day after the date of this contract; 22 July 1995?
A...... We found that out from Rielda. We did not find that out from Mr Bacchiaz.
QHe didn’t tell you that, did he?
A...... No, he didn’t tell us that.
QEven when you found out from Rielda that they had terminated the arrangement, you still didn’t know about this contract of agency, did you?
A...... I only saw this contract a week/ten days ago.”
McNicholl:
“Q.... If you had then been told by Mr Bacchiaz that he was not Rielda, did not own Rielda, was not a part owner of Rielda, did not speak for Rielda and was subject to a contract with Rielda which could be terminated by Rielda in the circumstances mentioned in the arrangement, would that have given you cause to consider your further involvement with the company Technilock, and in particular the expenditure of further moneys by you in that company?
AWhat it would have done is made us look at sections 13 and 14 and either get John to revise them according to our wishes, or we may not have gone on with it.
...
QYou told also that Mr Bacchiaz, ... that he told you that there were three owners of Rielda and he was one of them. You gave evidence that your belief was that, as he was a part owner, he would not get involved with distributing and marketing this product in Australia unless he believed in it. If you had known that he was not a part owner of Rielda, that he was in some kind of contractual relationship with Rielda, as an agent, and that if Technilock did not achieve stipulated sales targets his agency could be terminated and that, in any event, even if Technilock did achieve all specified sales targets, the agency could be terminated after five years, and that because of these matters Mr Bacchiaz could not guarantee Technilock exclusive rights to sell and distribute the locks for the life of the patent, would you have paid him $200,000?
A...... I don’t believe so.
QWould you have gone into the deal at all?
A...... Probably not.”
Tomkins:
"Q.... Would it have influenced your decision to resign from ATCO, take a job with a lower salary package, with Technilock, plus invest $200,000 of your own money, if you had seen that contract prior to making your commitment?
ANo, there was no way I would have got involved in it, because if you look at the date on this document, look at the time I was there negotiating to go into the company, there was obviously just over four years to run on this contract. There was no way I would put in $200,000 and I also had an option to put in another $100,000 which would give my [sic] another ten percent share of the company. No way I would have done that with only four years to run, or just over four years.
Q...... Now I think your attention was also drawn to a couple of clauses which deal with the subject of sales requirements?
AThat is under the s.13 there, within the first year of operation, the company had to sell half a million dollars worth of product, or they could lose the rights to distribute.
Q...... Were you aware that that was the case at the moment you resigned and organised your money?
AI did not.
Q...... What influence would it have had on your mind, if you had known of the existence of the contract, and of those clauses relating to the sales targets?
AOnce again, even under that clause I still wouldn’t have invested into the company, because once again they had to purchase $500,000 worth of product in 12 months. By the time I joined the company, there was nearly nine months gone, so within the next three months, that nine months in round figures, we purchased $150,000 worth, that means in the next three months we had to purchase another $350,000 worth.   That was impossible. There was no way.
Q...... What effect then, would you tell His Honour, would the knowledge of the existence of that contract have had, if you had known about it. In short, you say you wouldn’t be here today?
AThat’s right. I wouldn’t be here today. I would never have got involved in the company if I had known that contract existed.”
Silence may be an element in deceptive and misleading conduct, as the Chief Justice said in Software v Roadrunners Couriers. Bacchiaz’ silence about the real legal relationship between Rielda and Mondami was in the circumstances deceptive and misleading.
The stock ordered in February 1994 and for which the letter of credit was opened in April came in dribs and drabs from August. That in itself was unsatisfactory. Technilock could hardly promote a product if it had no samples to demonstrate. Technilock complained often about this. Worse still, when the locks did arrive they were no good.
There was plenty of evidence from Keimeier, McNicholl and Tomkins of customer complaints and unhappy experiences. There was also plenty of documentation which detailed the unsatisfactory nature of the locks. Some were written by Roland Harrison, some the correspondence from unhappy customers. Mr Neville Morecombe QC with Mr John Morecombe for the defendants, objected to this evidence being given, complaining that it was hearsay. Mr Martin Hoyle for the plaintiffs countered effectively that s34c, 45a and 45b of the Evidence Act were sufficient to answer the objection. He argued that these sections allow the admission of all business documentation, subject to the discretion of the judge, to prove the facts of which they speak and also hearsay facts contained within them. He drew the Court's attention to the Queen v Calabria (1982) 31 SASR 423 and in particular to the following passage @ 429, per King CJ:
“Sections 45a and 45b were inserted into the Act in 1972 to overcome some of the problems created by the technicalities of the common law and statutory rules of evidence relating to documentary evidence and to hearsay. Properly applied in circumstances to which they are suitable, those rules operate to exclude much unreliable and dangerous material. Applied rigidly, and without modification, or to circumstances to which they are unsuitable, however, they can exclude from the consideration of the courts evidence which is of undoubted probative value or which, at least, ought to be considered and weighed by a court before reaching a decision. Moreover, the exclusion of such evidence, not only leads to a decision being made on incomplete material, but sometimes on material whose true significance is distorted by the incomplete picture resulting from the exclusion. It is those mischiefs which the sections are designed to alleviate.”
Mr Hoyle in his closing address rebutted Mr Morcombe's objection amusingly and effectively:
“What about the Victoria (sic) Housing Commission [a customer]? We call Doug Stansborough. My friends object and say ‘No, he didn’t install the locks or operate them. That’s not good enough’. We call his second in command, who briefed a locksmith to go down and put them in. It’s not good enough. His evidence is hearsay. Then we call the locksmith and he proves he installed the locks one on each of 12 floors. How then could we take the next step? With respect to the first floor, we have to call, do we, the 20 residents of the Victorian Housing Commission who went in and out of the laundry and each of them has to give evidence as to how they used the key? What about their spouses? What about their children? My friend would object. So with respect to trying to prove that the customer was not satisfied with the locks, we would wind up, to satisfy our friends, we would have to call at least 240 elderly people from the Victorian Housing Commission to come along and say they tried to use the locks and weren’t able to do so.
Then that wouldn’t be enough, because then we would still have to call no doubt the locksmith who went along later to remove those locks.”
That part of Mr Hoile's address does highlight the issue that sections 34c, 45a and 45b address. This is the mischief which King CJ pointed out the sections alleviate. There were many unhappy customers, many were big organisations. To rely solely on direct evidence as Mr Morecombe QC tried to insist, would result in wasted expense, time and effort to prove something which already is obvious.
Mr Harrison at the time of trial was said to be in Hong Kong: calling him would have been difficult. This alone would enable me to allow in business records under section 34c(2)(a). As for the remainder of the documents, they are clearly business records and I admit them under sections 45a and 45b.
The fact is that Technilock never did succeed in getting orders from any of the big names which Bacchiaz had bandied about, Telecom and so on. What orders it did get and supply turned out to be disasters, like Rebel Sports Stores which fitted the locks to their tills but then could not open them to get to the money! It was costing Technilock more to go out to fix or replace faulty locks than the price they received for them. Eventually Technilock realised the risk of harm and injury to persons - such as Victorian Housing Commission tenants being locked in a laundry - was so great that they could not go on taking it by selling the locks.
Bacchiaz asserted that the reason for failure was the poor management of Technilock. I reject the assertion. Keimeier was not as good a manager as Tomkins (who took over management early in 1995) but Keimeier was not responsible for the failure of the venture. The fact is that a high proportion of the locks were too unreliable to sell. They were no good. As Mr Cherry said, it was a good idea but simply not properly executed.
I have canvassed only part of the oral evidence - and hardly any of the documents which I admitted - but, so far as I am concerned, the plaintiffs’ case against the defendants is already quite overwhelming. The false claims about the locks, their poor quality and performance, and Bacchiaz’ lack of disclosure of the true relationship between himself and Mondami on the one hand and Rielda on the other, make up a picture of conduct both misleading and deceptive. Accordingly the plaintiffs succeed. There is no need to consider the evidence further, neither that relevant to the cause of action on which the plaintiffs succeed nor to any other cause of action pleaded in the statement of claim.
As for remedy, I propose to rely on the calculations made by Mr McPharlin, the chartered accountant called by the plaintiffs. Mr Morecombe made some criticism of Mr McPharlin’s calculations. For example, in calculating the losses of Technilock he has included in the expenses for the company for 1997 $14,005 for “legal fees”. Mr Morecombe described them in his written submission as “Legal fees in respect of this action”. So far as I can see there is no evidence as to what they were. Certainly they were in the 1997 accounts, after the company ceased trading in the locks but I am not prepared to make the assumption against the plaintiffs that they should be included in costs on taxation and not in damages: they may have been for anything at any time. I shall leave them in.
Mr Morecombe came up with figures for damages of $109,880 for Keimeier and $239,055 for Tomkins. He reminded me that Mr McNicholl abandoned the action by discontinuing as a plaintiff and had said in cross-examination:-
“QI think it is the case that you do not seek to recover the $200,000 which was paid into the Swiss bank account, is that true?
...
A...... I am not interested in any money at all to be honest. I want to see justice done and in this particular instance Mr Bacchiaz is wrong.
Q...... Could you answer my question. What I have put to you is, as a result of you agreeing to the dismissal of your claim, you are not seeking to recover the $200,000 paid to the Swiss bank account?
A Correct.”
Mr Morecombe argued from this that Mr McNicholl should receive nothing. I accept that he can recover nothing directly in the action.
There is another problem. The company Technilock is a plaintiff and is entitled to be reimbursed for its losses. Yet if I reimburse both the company and the natural plaintiffs that would be double damages. I propose to follow the plaintiffs’ suggestion, indeed Mr Hoyle's request, to award damages to Technilock and then leave the company to reimburse the three individuals, Keimeier, Tomkins and McNicholl. Mr Hoyle reminded me that they are all still directors of Technilock and so there should be no problem about them being reimbursed.
In accordance with Mr McPharlin's report, the accumulated losses of the Technilock Unit Trust at 30 June 1997 can be summarised as:
Reported losses to 30 June 1997                  $149,020
Obsolete Stock  $128,300
Distribution Rights  $300,000
Total         $577,320
I accept Mr McPharlin’s figures that Keimeier, either directly or through his rather complex web of partnerships and trusts, is entitled to $186,030, Tomkins to $171,000 and McNicholl $255,000. While intimately connected with Technilock's losses, these figures do not add up to the same total: nor should they. They are Mr McPharlin's figures: that is enough.
Of this $577,320, the T1 and T2 Partnerships would be reimbursed $411,000. The T1 and T2 partnerships were entities formed by Keimeier and McNicholl respectively, to transfer funds involved with Technilock. The Technilock Unit Trust Balance sheets shew that $156,030 is owing to the T1 Partnership which is under the control of Mr Keimeier. However, Mr McPharlin's records clearly shew that Mr Keimeier has invested $30,000 over and above this amount. This is because the business of Technilock was originally conducted through the T1 and T2 Partnerships. Keimeier should have, therefore, a further $30,000 to reimburse him fully for his loss, $186,030 in all.
There remain two other points to decide. First the plaintiffs have claimed for loss of profit in the first year of trading (really the only year of trading) $1,380,955.00. This was a figure projected by KPMG, the accountants, based on information given to them by Bacchiaz. Bacchiaz used the figure as an inducement to Keimeier and McNicholl. I doubt if either ever had much regard to it: certainly Tomkins never did. The plan of Keimeier and McNicholl was to go steadily in the first year. As Keimeier put it in cross-examination:-
“A... The directors’ views, as I stated before, are ‘steady as she goes’. We invested a lot of money in this product. We want to know and keep going slowly. We weren’t going to hit the market ‘bang’ like that. We didn’t know what the product, which areas it was going to go to, so ‘steady as she goes’, that was our philosophy.”

That being so I could award only a nominal amount, really the loss of a chance to do better than break even. It cannot be much more than a guess, or to use the time honoured euphemism “wielding the broad axe”. I shall allow $100,000.
Finally there is the question of compensating Keimeier and Tomkins for the loss of the use of the moneys which each put into Technilock. Mr Morecombe remarked that he had never heard of an award for loss of use of money when no award of the principle sum had been made in favour of the party asking for something for loss of use. That may be so but there is always a first time and the situation here is unusual.
Mr McPharlin did the calculations.   They are in exhibits if others need to look at and analyse them.   For myself I shall simply accept them, including Mr McPharlin’s omission of anything for Keimeier until after he sold The Mansions in Pulteney Street and began investing his money: until then he had kept the money in cash, in the safe, not invested.   Up to the 30 of November 1998 Mr McPharlin’s calculations are -
Keimeier           $79,139
Tomkins             $68,055.
Adding interest for another two months up to judgment at the respective rates chosen by Mr McPharlin makes the totals -
Keimeier $82,769
Tomkins $70,674
Bringing it all together, there will be judgment for all plaintiffs against both defendants, for the plaintiff Technilock (Australia) Pty Ltd, $677,320, for Heinz Keimeier $112,769.00 and for Cliff Tomkins $70,674.
I shall hear counsel as to the orders I should make.

[1999] SASC 19

2 February 1999