Trade Practices Commission v Pye Industries Sales Pty Ltd

[1978] FCA 90

I

1 ) ) NO. 35 of 1977

)

GENERAL DIVISION 1

TRADE DRACTICES ACT 1974

B E T W E E N :

TRADE PPUCTICES COi4ii'IISSION

Plaintiff

- and -

PYE IXDUSTRIES SALES PTY. LIMITPD

Defendant

REASONS FOR JUDGMENT ST-JOHN J.

FRIDAY, 27 OCTGEER 1978

By statement of claim the Trade Practices Commission (the

plaintiff) alleges against Pye Industrles Sales Pty. Limited

(the defendant company) breach of s.48 of the Trade Practices

- Act 1974 (the Act) which proscribes engaging In the practice

of resale price maintenance and the plaintiff sGehs the

imposition of a pecuniary penalty pursuant to s .76 of the

I

Act and an inpnction pursuant to s.80 of the Act restrainmg

! .

the defendant from engaging in the practice of resale price

maintenance in the future. The acts which constitute engagicg

in resale price maintenance are set out in s.96 and relying

upon the definitions In that section, the plaintiff alleges

that the defendant, by Its agcnt:

. . /2

I -2-

(a)

attempted to induce Janice Elizabeth Collins

trading as The Coin Operated T.V. Company,

(Coin Operated), a television dealer, not to

sell televlsion sets at prlces less than the

prices specified by the said agent: and

(b) by its agent, attempted to induce the sald television

I

dealer not to advertise certain televlsion receivers

supplied to her by the defendant for sale at prices

less than the prices specified by the defendant: and

!

(c)	by its agent, used in relation to the defendant's
television recelvers a statement of prices whxh said
statement was likely to be understood by the said television dealer as the prices below which those goods were not to be sold.

Elizabeth Collins, his wife, or one of them, had carried on the

business of selling and renting televlsion recelvers in the

From 1963 until the relevant time Ronald Collins and Janice township of Koolewong situated approximately two miles from

Woy Woy. This business from 1971 was Coin Gperated, which Mrs.

%ollins owned, and her husband, Ronald Collins managed: it sold

and rented almost exclusively Pye television receivers which

were supplied from the defendant company's Marrickville

premises. Television recelvers for sale were obtained from

the defendant company. Television receivers for rental were

supplied by Pye Finance (Australia) Pty. Limited (Pye Flnance).

Receivers initially the subject of a rental agreement could

. . /3

I , I

I ’ -3-

be sold to the person renting. Although technically conversion

i f Pye Finance was not paid out before sale that company

raised no p r o t e s t i f payment was made t o it within one week

of the sale. Upon the lntroductlon of colour transmission

i n l a t e 1974 Coin Operated applied f o r a c red i t account

I

with the defendant company and, i n response, by letter

dated 2 December 1974 the defendant company wrote i n t e r a l i a :

“As it is a policy of t h i s company to p lace a

l i m i t on a l l new accounts I n t h e i n i t i a l s t a g e s ,

and having taken in to cons idera t ion a l l the

f a c t s a t our disposal we have placed your limit

a t $1,000. This h m i t , n a t u r a l l y , will be

reviewed from month t o month. “

From that date up u n t i l April 1976 Coin Operated had purchased

some te levis ion receivers from the defendant company and had

on occasions been delivered 2 sets on c r e d i t , t h e t o t a l

wholesale price for which was i n excess of $1,000.

The relat ionshlp between the defendant company and Pye Finance

assumes importance because p a r t of t he p l a ln t i f f ’ s ca se is

that the defendant company “co-operated with” Pye Finance and

Pye Industr ies Limited.

The defendant company had a share capi ta l of $1,110,000

divided into shares of $2.00 each and a t the re levant

time the total value of issued shares was $1,104,480.

Pract ical ly a l l the shares issued were held by Pye Industr ies

Limited. Pye Industries Limited was a public cDmpany whlch

held almost half the shares I n Pye Flnance (Australia) Llmited,

. ./4

-4-

I

._

the other half being held by Commercial and General Acceptance

Limited. The to ta l i s sued share capi ta l of t h i s l a t t e r

company had a nominal value of $40,000.

up u n t i l the events upon which the plaint i f f bases his c la im

took place in May 1976 Coin Operated was regarded as a

good account and although there were some delays I n payment

, of moneys due al l the evldence points to sa t i s fac t ion

on the par t of both the defendant company and Pye Fmance.

I n April 1976 the television dealer, whose husband, M r .

Ronald Arthur Collins managed her business,began an advert ismg

campaign i n two newspapers of loca l d i s t r ibu t ion , namely

the "Central Coast Express" and "The Gosford S ta r " i n whlch

advertisements a statement appeared to the e f f ec t t ha t Pye

colour televisions could be purchased " a t much less than shop

price" from Coin Operated. These advertisements were inser ted

i n issues of those newspapers on 14, 2 1 and 28 April 1976

and 5 and 1 2 May 197G.

On 10 May 1976 one Ray Daniels, a sales representative of the

defendant company f o r an area, including that i n which Coin

Operated did bus iness , telephoned M r . Collins and informed

him t h a t a l o t of te lev is ion dea lers in the Gosford area

were driving him (Daniels) mad ringing up every day

complaining about the advertisements. M r . Daniels enquired

of Mr. Collins what pr ice a colour television receiver

known as 26A2 was being sold a t by Mr. Collins and he

repl ied "$749". Mr. Danlels responded, "but that price

* ./5

-5-

.-

t

is much too low, $799 was the pr ice" and added "we are

s i t t i n g on t h a t up i n Newcastle. You will f ind most of the

r e t a i l e r s i n Gosford - it does not matter which one you go

t o - a r e a l l on about $799.". M r . Daniels requested and

was granted the opportunity t o v i s i t Mr. Collins and

t h a t v i s i t took place in the forenoon of 12 May 1976.

M r . Col l ins said that M r . Daniels there told him t h a t he

(Collins) was causlng him (Daniels) "a heck of a l o t of

trouble" with the advertising and the prices being charged.

M r . Daniels again enquired of the pr ice of the 26A2 model

te levis ion receiver and a l so the se l l ing pr ice for o ther

models. He was hown a list of pr ices and h is reac t lon was

t o s t a t e t h a t t h e y were "way too low" and he again said that

certain dealers including "discounters" were charging $799

and a l so s ta ted s t ructure and you "we a r e t r y i n g t o s t a b i l i s e our pr ice

are upsetting thirlgs". M r . Daniels

subsequently wrote what was termed the "go prlce" opposite

each pr ice on the list shown him and t h a t document became

an exhibit . The "go pr ice" is t h e p r i c e a t whhlch dealers were

sel l ing te levis ion receivers : it was, according to M r . Daniels

not rigid but could vary by $10 or $15 up or down. For pa r t

of the time Mrs. C o l l i n s was present and although there were

some differences i n t h e n r e c o l l e c t i o n s I accept M r . and M r s .

. Collins a s truthful witnesses.

M r . Daniels, fo r an area comprising Newcastle, a t the relevant t ime, was the sales representat ive

the Hunter Valley and the North

and Central coasts of New South Wales. For sa l e s i n tha t a r ea

. ./6 I

-6-

. I' I

hc was directly responsible to the State s l s manager of

the defendant company, one Mr. Willock. Mr. Daniels' duties

were to promote sales to retailers of the company's products

' and to seek to achieve an estimate budget figure. He stated

that during April 1976 he received a number of telephone calls

I

from retailers in the Gosford area in which complaints were

made about the advertisements referred to. He said khat he

wished to inspect the type of operation that Mr. Collins was

running and hls purpose in telephoning Mr. Collins and maklng

the appointment had that end in view. His account of the

conversation at the Collins' premises differs substantially

from Mr. and Mrs. Collins' recollection: for example he says

he wrote the "go prices" at the request of Mr. Collins and

that he discussed with him the cost of the warranty and the service involved In the warranty and said "that the purpose of his visit was to help Mr. Collins". Under cross-examination

he said that.before his visit he had a discussion with Mr.

Willock and during that discussion he said to Willock, "it

has just got to be - he is selling $50 below everybody else in the area". When pressed to say what words followed

"got to be" he substituted "I" for "it" and used the words,

"I have just got to go and see him". This was a lame

attempt to deceive. Having regard to the surrounding

circumstances, subsequent events, and some further conduct

of Mr. Daniels after this date I am satlsfied that, as to the

conversation with Mr. and Mrs. Collins, their version is to

be preferred. I regard Mr. Daniels as a most unreliable

witness. Mr. Daniels' concession under cross-examination

. ./7

I

-7-

1

-.

t ha t he attempled L o " en thus~ ' Mr. Collins to adhere to "go

prices"" reinforces my f a i t h i n the verslon given by M r . and

m s . Collins .

On the day a f t e r Mr. Daniels ' v is i t a M r . Ph i l ip Lown, an

employee of Pye Finance ca l led upon M r . Co l l in s a t Koolewong

and carried out what has been termed an audi t of t h e s e t s

, t ha t were the sublect of a bailment agreement between Coin

Operated and Pye Finance and pa r t of t ha t aud i t was t o

discover the location of the sets. On 14 May 1976 or soon

thereaf te r M r . Lown prepared a report and included i n It were

comments which indicate qui te c lear ly that M r . Lown questioned

M r . Collins about his prices and I concluded from t h i s t h a t

Mr. L o w n ' s v i s i t was i n s p i r e d , a t l e a s t i n p a r t , by the

complaints made by other dealers i n the area and the desire

of both Pye Sales Pty. Llmited and Pye Finance t o have M r s .

Collins conform t o the "go prices".

As t o t h i s a u d i t it was the defendant company's case that

i ts purpose was t o a l l a y f e a r s t h a t Coin Operated may be

sel l ing rental receivers and not accounting for the proceeds.

These f ea r s , it was sa id were generated by the advertising

campaign of Coin Operated. The audi t was used as an excuse

by M r . Taylor, the credit manager of Pye Finance durmg the

relevant period to delay new c red i t arrangements between Pye

i

Finance and Coin Operated.

T h e written report on the "audit" could no t be regarded as

unsatisfactory and i n f a c t Mr- Lown informed Mr.	Collins
. ./8

-8-

..

before he departed that he wuuld receive a good repvr L.

By a c i rcular dated 14 May 1976 Pye Finance advised Coin

Operated of a "new special rental model release" and gave

cer ta in de ta i l s of the "bailment deal". Coin Operated

continued to adve r t i s e in the two newspapers on 1 9 May

and 26 May includmg a f u l l page advertlsernent which referred

t o complaints by other competltors and made reference in an

indirect way to the provis ions of the A c t r e l a t i n g t o

resale price malntenance. On 26 May 1976 Coin Operated

wrote t o M r . Mark Holland, the sales manager of Pye Finance

Limited, enclosing a copy of the advertisement and forecasting

an increase in both rentals	and sales	a s a	r e s u l t of	the
advertising campalgn.

Two t o t h r e e days a f t e r M r . Lown's v i s i t Mr. Colljns ordered

f o r Coin Operated m the normal way 4 te levis ion receivers from Pye Finance by telephoning the bailment officer, M r s .

Jean Smith. On 21 May 1976 Mr. Collins telephoned Pye

Finance's credit manager, Mr. Taylor, and enquired when out-

standing orders would be despatched and wss informed t h a t he

would be advised pending a review of the c red i t l i m l t f o r

Coin Operated. On 28 May 1976 Mr. Taylor wrote t o M r . and

H r s . Collins and informed them t h a t an increase t o 200

: te levis ion receivers on bailment ( a proposal discussed on

the telephone on 2 1 May) would require lodgment of a personal

guarantee by both of t h e m supported by a securi ty i n the

v i c in i ty of the value	of S40,OOO and there could	be no
. . /9

-9-

increase oL Clre preseuL crediL l i m i L u r l L i . 1 Lhe necessclry

secur i t ies were obtained.

A t that s tage the credi t l i m i t of Coin Operated was 50 colour

sets but i n f a c t some 79 colour sets were the subject of a

bailment agreement and up till that point there had been no

suggestion of a review of c red i t fo r r en ta l and apparently

no rea l concern about the credit rating of Mrs. Collins.

On 28 May 1976 Mr. Collins forwarded the amount due t o the

defendant company for the current month and ordered 5 te lev is lon

s e t s , one of whxh may not have been i n stock and available

but the other 4 of which were I n stock and available. This order was recorded i n t h e normal wsy on an internal order

form on 1 June 1976. On about 26 May 1976 1-33. Wlllock,

the sa les manager of the defendant company, received a

memorandum from Mr. Danlels reporting upon the account of

Coin Operated. In tha t memorandum M r . Daniels stated inter

a l i a t h a t M r s . Col lms was "approx. $50 below any other

dea ler in the Gosford area. Dealers who have complained most strongly - and who have stated they will no longer

support Pye while t h i s s l tua t lon ex is t s a re" .......( there

followed a list of dealers) "I suggest i n view of the

poten t ia l of the above accounts plus our marketing strategies

.	that could be fouled we do not supply	him with sa le sets and
this practice to cease immediately.".

Mr. Willock was not called as a wi tness b u t tendered i I z !

. ./l0

-10-

-_

evidence was a t ranscr ip t of a conversation bctwccn h i m and

M r . Kirk, the secretary of both the defendant and Pye Fmance

and i n t h a t t r a n s c r i p t M r . Vlillock is recorded as having

agreed that he made a decis ion to hold up the order contained

i n the let ter from Coin Operated dated 28 May 1976. It is

further recorded that M r . Willock stated that he based his

decision upon h i s conversatiorl with Mr. Daniels and tha t he

wanted t o hold the order up f o r a week or so " t o see what

newspaper ads M r . Collins would put in the local paper" . A f t e r

placement of the order t o the defendant company contained

i n t h e le t te r of 28 Nay 1976 Mr. Collms telephoned the

sa les desk and was informed on a number of occasions that

his order was "being processed". On or about 26 May 1976

M r . Collins telephoned M r . Mark Holland, the then marlsger of

Pye Finance and enquired of him what had happened t o h i s

supplies. Mr. Holland s t a t ed tha t he was up i n Newcastle

and there 1 s "a l l h e l l t o pay. Four of the Gosford

retailers are complaining you are under-cutting them and

it looks l i k e we can do 200 colours a month on the Central

coast unless we can keep them happy. ' I .

On 8 June 1976 M r . Collins composed and M r s . Colllns signed

a let ter t o t h e Chairman of the Trade Practices Commission

se t t i ng ou t i n a summary form a his tory of the transactions

between Coin Operated and the defendant company and Pye

Finance and on the same day forwarded a copy t o t h e managing

director of Pye Sales. On 10 June 1976 M r . Kirk In his capacity

as secretary of the defendant wrote t o Coin Operated.

. ./l1

I -11-

I

!

€ 1 ~ referred to the complaint t o the Trade Practjcps Commlsson

and s t a t ed t ha t It was a firmly established company policy

I

t o adhere t o a l l l e g i s l a t i o n i n c l u d i n g t h e Trade Practices

A c t . Included i n t h e let ter are the following statements:-

!

"I have sighted our internal record of your order

of 31 May 1976 you r e f e r t o I n your l e t te r t o t h e

Chairman of the Trade Pract ices Conunlssion.	That
order vas being processed as prevlously indicated

t o you by our Sales Department and a s I understand

four of the f ive colour sets you ordered are being

I	delivered today ........ ......
Deliveries were not mthheld from you f o r any reason r e l a t i n g t o t h e r e t a i l p r l c e s a t \ihich you sell. I n
t h i s ca se your order was f l l l ed , sub lec t t o ava i l ab le
stock, w i t h l n a reasonable t l m e ( t e n days) of receipt
of that order. "

On sighting the complaln'c t o the Trade Practices Commission,

on 9 June M r . Kirk made arrangements for the urgent delivery

of the four receivers by special courier. "I was frightened

tha t a breach or infringement had occurred", he said. Under

cross-examination as t o when enquiries were made by him of

Mr. Willock that he did not as to the reason for delay in del ivery he s ta ted

commence asking questions on 10 May 1976,

b u t arranged for Ivir. Willock t o see hlm i n h i s o f f i ce .

No knowledge of the reason for delay would, i n my view,

honestly inspire a letter s t a t ing tha t de l ive r i e s were not

withheld for "any reason relat ing to re ta i l pr ices" . Further ,

the suggested lack of enquiry i s inconslstent with alalm at

the seriousness of the s i tuat ion.

I n my view Mr. Kirk declded to conceal the breach 03 the

A c t he knew had occurred and acted accordingly.

. ./l2

- -1 2-

5 ' . a

Mr. Collins gave evidence tha t he had enqulred as to whether

the four sets were in s tock and was informed that they were

and a l so gave evidence that delivery normally took place

within 2 days of placement of that order. No real challenge

was made t o t h a t evidence and I accept it.

In an order book kept by Pye Finance tendered i n evidence an

order for 2 26A2 receivers and 1 22AC receiver dated 18.5.76

has been ruled out and the word "cancelled" wrltten above it

and an order for 8 26A2 receivers and 1 22A6 dated 26.5.76

I

had received the same treatment. The orders were not

..

cancelled by Coin Operated.

On 17 June 1976 M r . Kirk I n his capaci ty as secre ta ry to

Pye Finance wrote t o M r s . Collins repeating that provision

for secur i ty to the va lue of $40,000 was necessary before

Pye Finance would supply further quantit ies of te levis ions

under the bailment agreement. Subsequently, Coin Operated

obtained finance from Esanda Limited and pald out a l l moneys

due under the ballment agreements in re la t ion to co lour

te levis ion sets .

The submission tha t a s a t Apr i l 1973 Com Operated was a

good account and not a c r ed i t r i sk i s overwhel.mingly

supported by the evidence. On t h e v i s i t by Mr. Daniels t o

Coin Operated on 1 2 May he offered stock without any mention

of credl t res t r ic t ions . The absence of Mr. Holland, Mr.

Wiilock and Mr. Lown, with no explanatlon as to why they

. ./l3

-13-

w e r e no t ca l led , fac l l j t a tes drawing the inference t h a t t he

r ea l concern of the defendant company and Pye Finance was the

threa ts by other dealers, recorded in M r . Daniels' memorandum,

t o cease tradlng i n Pye receivers. It could not be t h a t

Coin Operated had suddenly become a c red i t r i sk . I n any

event, if dealing were r e s t r i c t ed by pas t p rac t lce to two

receivers, two of	the four ordered	cou1.d have been	delivered
instead of four.

I am sa t i s f ied tha t : -

I

(1) The defendant company by i t s servant and agent Daniels

attempted t o Induce Coln Operated not to sell a t

pr ices less than those specified by hlm i n wrlting.

( 2 ) That supplles of te levis lon receivers were withheld

by the defendant company and by Pye Finance a t t h e

ins t iga t ion of the defendant company because Coin

Operated f a l l ed to ag ree to se l l a t p r ices not less

than those specified by the defendant company

and because i f suppl les were ava i lab le to Coin

Operated that f i rm would advertise those receivers

a t p r i c e s less than those specified or advertise

tha t Coin Operated sold	more cheaply than other
dealers in the area.

As to the length of time durlng which supplies were wlt lheld

by both the defendant company and Pye Plnance a t t he In s t iga t ion ,

. ./l4

I

-14-

of the defendant company i S d i f f i clllt to determine hccallse

both companies after 12 May 1976 relied on alleged rules

regarding credit to dealers. Whatever such rules were in

force at the relevant time I am satisfied that they were

often breached with the Icnovrledge of the management of both

companies. In my view had not Coin Operated advertised and

sold beneath the prlces specified Py Finance would have

increased steadily the number of sets the subject of a

bailment agreement to approximately 120 and the defendant

company would have allowed credit for at least	5 s t at any
one time.

The allegation that the defendant company by its agent used

a statement of prices that was likely to be understood as

prices below which goods were not to be sold	is necessarily
made out on the above findings.

For the reasons stated I formally find the defendant company

in breach of s.48 of the Act.