Tropical Shine Holdings P/L trading as K.C. Country v Lake Gesture P/L

[1993] FCA 680

680 93

JUDGMENT No. ........ ........ .. 1 ...,..,....,

IN THE FEDERAL COURT OF AUSTRALIA )

1 No. NG 575 of 1993

GENERAL DIVISION i

BETWEEN:	T R O P I C A L S H I N E HOLDINGS PTY LIHITED trading a S K.C.
COUNTRY Applicant
AND:	LAKE GESTURE PTY L I M I T E D a n d S E R E N D I P I T Y C O N S U L T A N T S P T Y LIHITgD
First Respondents
JOHN VICTOR SMRHAUG Second Respondent
VERONIKA ELIZABETH STORHAUG
Third Respondent and
DONALD ANDREW FRANKS
Fourth Respondent

WILCOX J: This is an application for declaratory and	injunctive relief by a trader against persons involved in a
competitive enterprise. The applicant, Tropical Shine Holdings Pty Limited, trades as "K.C. Country". The company is involved in the wholesale and retail furniture trade and, in particular, in the distribution within Australia of teak and mahogany furniture imported from Indonesia.
The applicant operates six retail outlets, one at Erina, near Gosford on the central coast of New South Wales, and five within the Sydney metropolitan area. In addition, the applicant supplies furniture to 35 retail outlets operated by independent traders. All but three of those other outlets are within New South Wales or the Australian Capital Territory.
The first respondents named in the application, as amended, are Lake Gesture Pty Limited and Serendipity Consultants Pty Limited. These companies are two of the three proprietors of a firm known as "Federation Furniture Company". Through a defect in a registered business name search, the -
proprietor, Koala Craft Cottage Products Pty Limited. That applicant was unaware of the fact that there is a third
proprietor is not a party to the present proceeding.
The second respondent to the proceeding is John Victor Storhaug. He is apparently associated with Lake Gesture. The third respondent, Veronica Elizabeth Storhaug, is also associated with Lake Gesture. The fourth respondent, Donald Andrew Franks, is a director of Serendipity -
Consultants. He has given evidence on behalf of the respondents and appears to be one of the persons, perhaps the person, most actively engaged in the affairs of Federation Furniture Company; at least insofar as they are relevant to this proceeding.
corn:	WILCOX J
PLACE :	SYDNEY
DATE :	9 SEPTEMBER 1993

EXTEMPORE REASONS FOR JUDGMENT

The proceeding is brought under 6.52 of the Trade

Practices Act 1974. The applicant complains that the corporate respondents have engaged in misleading conduct in connection with the publication of newspaper advertisements concerning projected furniture sales and that the individual respondents have been knowingly concerned in that conduct: see s.75B of the Trade Practices Act.

The evidence given by Mr Franks establishes that Federation Furniture commenced business on 1 June 1992. It established business premises at Ernest, on the Gold Coast of Queensland, apparently at about that time. The firm maintains a showroom at Ernest in which furniture is displayed. In

made at the prices shown on the tags, but at the prices at	price tags. However, Mr Franks conceded that sales were never recent times, at least, the displayed furniture has borne
which the furniture is offered at special sales conducted by Federation Furniture at showgrounds and similar locations throughout eastern Australia. He said that about 90 per cent of all sales effected by the firm are made in the special showground sales. The remaining 10 per cent are made from the Ernest showroom.
The applicants tendered a bundle of newspaper advertisements concerning the various sales. It is relevant to note that the earliest of them was published on 11 June 1992; that is, only 10 days after the firm commenced business. It advertised a sale at the respondent's premises in Reichert Drive, Ernest under the banner headline which becomes familiar CO anybody looking through the later advertisements, "Importers Total Liquidation".
Mr Franks said that the practice of Federation Furniture in relation to the showground sales, as I will call them, is to take to the sale site one or more containers filled with furniture. The firm endeavours to sell all that stock during the course of the sale. He pointed out that there is a significant cost involved in carting away unsold stock. In order to stimulate interest in the sale, Federation Furniture publishes newspaper and television advertisements. As I have said, this case concerns newspaper advertisements. There is no evidence as to the content of the television-
advertisements.
The newspaper advertisements are in substantially similar form. Counsel have argued the matter on the basis of an advertisement which appeared in a Sydney newspaper, the Daily Telegraph Mirror, in connection with a sale to be held at the International Pavilion, Sydney Showground, on the weekend following the date of publication, 10 June 1993. When one looks at this advertisement, one's eyes are immediately
attracted to the banner headline "Importers Total Liquidation". This is in large print at the top of the page. Adjoining and to the right, in somewhat smaller print but circled with broken lines to attract attention, are the words "Up to 70% off Normal Retail prices". Below those inscriptions are photographs or drawings of items of furniture. In each case there is a broken circle containing two prices. One is described as "Normal Retail"; the other, in larger type, is described as "Liquidation price". Under the liquidation price figure is the word "Save" followed by a figure which is the difference between the two prices. Towards the bottom of the advertisement, under the words in medium size type "Federation Furniture" are these words:

"Federation Furniture is an importer of quality handmade solid teak and mahogany furniture . We now find ourselves in a position where we must liquidate our entire stock of cottage and reproduction- style furniture this week. These liquidation prices are unavailable anywhere else within Australia - if you're

looking for genuine, solid teak or

prices this is it - all our furniture is mahogany furniture at unbelievably low handmade - quality teak and mahogany."

The Statement of Claim filed by the applicant details its allegations of falsity. The representation8 that the applicant alleges were made by the advertisements are detailed in para.13:

"13. By the said advertising and

-	promotion, the First Respondent made the following representations: -
( a ) That the f u r n i t u r e a v a i l a b l e was

n o r m a l l y a v a i l a b l e	for	r e t a i l	a t
the	'Nonnal	R e t a i l *	p r i c e s

s p e c i f i e d .

(b)	That the F i r s t Respondent was i n l i q u i d a t i o n or would be a t risk
o f l i q u i d a t i o n o r u n f o r e s e e n
l a c k o f l i q u i d i t y u n l e s s
f u r n i t u r e was s o l d a t a
s u b s t a n t i a l d i s c o u n t from p r i c e s
a t which the f u r n i t u r e was
n o r m a l l y a v a i l a b l e for r e t a i l

s a l e .

( c ) That the ' L i q u i d a t i o n Pr i ce '

a v a i l a b l e from the F i r s t Respondent was a t a level not a v a i l a b l e anywhere else w i t h i n A u s t r a l i a .

( d )	Tha t the ' L i q u i d a t i o n Price' a t
which the f u r n i t u r e was
a v a i l a b l e from the F i r s t
Respondent would s a v e purchasers
a sum e q u i v a l e n t t o t h e
d i f f e r e n c e between the 'Normal
R e t a i l ' p r i c e a n d t he
' L i q u i d a t i o n P r i c e ' a d v e r t i s e d

by the Respondent .

( e )	That the ' L i q u i d a t i o n P r i c e ' a t
which the f u r n i t u r e wa S
a v a i l a b l e from the F i r s t
Respondent r e p r e s e n t e d a s a v i n g
o f u p t o 70% o f f Nonnal R e t a i l

prices.

( f ) That a l l the f u r n i t u r e a v a i l a b l e

from the F i r s t Respondent was ' q u a l i t y t e a k and mahogany' and

would be s u i t a b l e f o r u s e i n

A u s t r a l i a n c o n d i t i o n s . "

Paragraph 14 of the Statement of Claim alleges that these representations were false, particulars being given.

In considering the meaning to be accorded to the words in the advertisement, it is necessary to read the published material as a whole. Some of the words and phrases used in the advertisements are capable of being understood in more than one way. In order to determine what they would convey to the ordinary reader, it is necessary to consider their context.

The first matter that calls for consideration is the word "liquidation". This word dominates the advertisement, both because of the large banner heading and the repeated term "liquidation price". Counsel for the applicant contend that the word "liquidation" suggests an existing or imminent corporate collapse or liquidation. Counsel for the respondents say that the word has no such connotation; that it merely refers to the conversion of assets into money.

I do not agree with either of these submissions. If the word "liquidationn merely meant the conversion of assets into money, it would have no meaning in the context of an advertisement offering goods for sale. By definition, there-

would always be a liquidation.	On the other hand, it is
common to speak of a "liquidation sale" in the context of	closing a shop or closing down a particular line of business.
Although the word "liquidation" is often associated with corporate collapse, I do not think that it necessarily implies such a situation.
Counsel for the respondents also say that it is accurate to speak of a "liquidation sale" if the advertiser -
desires to sell all the stock taken to a particular place. They argue that, in this sense, the advertisement is correct; all the stock at the advertised venue is to be liquidated within the week.
I do not think that a reader of the advertisement would understand the word "liquidation" in this way. The advertisement contains its own explanation of what is meant by the word. I refer to the second sentence of the passage quoted above:

"We now find ourselves in a position where we must liquidate our entire stock of cottage and reproduction-style furniture

this week. "

I do not think a reader would understand the words "our entire stocku to refer only to stock taken to a particular place. The reader would treat this description as being a reference to the entire stock of the advertiser,

Federation Furniture, whose name is prominently stated immediately above the passage in which the sentence occurs.	It seems to me that, on any fair reading, the advertisement
suggests that, for a reason not necessarily associated with corporate collapse, it is necessary for Federation Furniture to sell all the stock owned by it in the week of the advertisement.

If this is the message that the advertisement conveys, it is clearly untrue. It is noteworthy that this terminology began to be used only 10 days after the firm commenced business. It seems to me that the respondents have deliberately embarked upon a practice of referring to their special sales as "liquidation sales" in order to excite the interest of readers. I think they intended to give readers the impression that the sale, the subject of the advertisement, was an exceptional opportunity to purchase furniture at bargain prices. Of course, the advertised prices were the respondent's standard prices. They were available at any time at Ernest; and at its showground sales, as they occurred from time to time around the country. The use of the word "liquidation" was calculated to cause readers to believe that there was nothing to be gained from comparing Federation Furniture prices with those of its competitors; the prices being offered were very special prices. It seems to me that the advertisement is misleading in its use of this term.

-

The second question is the meaning of the words

"Normal Retail price", and whether there was any

misrepresentation in connection with that term.

There has been debate between counsel as to the meaning of "normal retail" in this context. There are at least three possibilities. One possibility, urged on behalf of the applicant, is that the phrase refers to the price at which Federation Furniture usually sells to its customers.

The second possibility, urged by counsel for the respondents, -

is that it is a reference to the standard price at which the generality of retailers sell to their customers. A third possibility, which is referred to in the Statement of Claim but was not argued at length, is that the term "normal retail" has no meaning whatever; that there are no normal retail prices of the furniture being advertised. On this possibility, it follows, according to the Statement of Claim, that the use of the term was misleading.

Of the three possibilities, I prefer the first. It seems to me that most readers would treat the words "normal

retail" as referring to the price at which Federation

Furniture usually sells to the public. My first reason is

linked to the matters already mentioned, that the word

"liquidation" suggests that this is a special event, a

liquidation sale, at which there are extraordinary bargains

available for a very limited time. Secondly, the

juxtaposition of the two figures in the circles containing the

prices suggests that Federation Furniture is, in effect,	-
quoting two prices: its normal retail price and its

liquidation price. I think, thirdly, it is significant that the normal retail price is specified to the precise dollar. In most cases the "normal retail" price ends with a figure

w 9 9 n . This suggests that the advertiser has in mind a

particular price, not simply a price within a range. It would be different if the statement included the word "about" or an equivalent, thereby indicating to the reader that this was an indication of a general figure, rather than a precise figure. -

A reader who sees, for example, that the two door Irish

dresser has a "normal retailn price of $1,799 would, I think, regard this as a specific price available at a particular place.

If I am wrong in thinking that a reader would understand "normal retailn to be a reference to the advertiser's own prices, it seems to me that it was misleading to quote a normal retail price at all. The evidence in relation to prices charged by others is scanty. I say this as a matter of fact, not by way of criticism. The matter was brought on for hearing urgently. There was not much time for evidence to be obtained from third parties. However, such as it is, the evidence suggests that there is really no such thing as a normal retail price for furniture like this. The prices disclosed by the evidence exhibit considerable variation. It may be possible to quote a range of retail prices for any particular item, but it is difficult to accept that there is a specific "normal retail" price.

If, contrary to my opinion, the proper interpretation of the words "normal retail" is that it is a reference to prices charged generally by retailers, the statement is misleading. Such as it is, the evidence indicates a level of prices in the retail trade roughly comparable to that at which Federation Furniture offers its furniture. The applicant's prices are generally comparable with Federation Furniture. There is evidence of prices at -

some other stores. Five examples have been given. They arise out of items offered in three stores, at Summer Hill, Crows Nest and Tamworth. In only one of the five cases, namely the Dutch balloon chair offered at Summer Hill, is the price quoted by the store comparable with the "normal retail" appearing in the advertisement. In each of the other cases, the price is markedly below the "normal retailn price.

It must also be remembered that the applicant itself conducts six retail outlets, five of which are in Sydney. It supplies 32 other outlets in New South Wales and the Australian Capital Territory. There is no evidence in admissible form as to retail prices at the supplied outlets. But the applicant's wholesale prices are in evidence. It is obvious that those prices would enable the supplied outlets to offer furniture at price levels broadly comparable with those charged at the applicant's retail outlets.

Mr Franks said that there were perhaps 50 to 100 -

Whatever the figure might be, it seems that the applicant is shops in New South Wales selling this type of furniture.

influential in the market. Most of the items are relatively

expensive. One would expect that a person contemplating the purchase of a major item of furniture at a retail store would shop around for the best price. It seems unlikely that other retailers could maintain price levels significantly higher than those offered by the applicant. It will be recalled that

the respondents claim that their prices are up to seventy per -

cent off normal retail prices. I have not calculated all the percentage discounts claimed in the advertisements, but many of them indicate a liquidation price of about half the alleged "normal retail" price.

If the applicant's prices are much the same as the Federation Furniture prices, as I am satisfied they are, it seems impossible to accept that there is a normal retail price of the order of double those figures. I agree that the evidence is scanty. However, so far as it goes, it suggests that the so-called "normal retail" prices are inaccurately stated; this is, of course, on the basis that the term has the meaning suggested on behalf of the respondents - a view I do not accept. On any view, the references in the advertisement to "normal retail" price are misleading.

The third matter arises out of the sentence contained in the passage quoted above: "These liquidation

prices are unavailable anywhere else within Australia." This	-
applicant who swore several affidavits in the matter, made an	representation is untrue. Mt Colin Trigg, a director of the

analysis of 21 items referred to in one advertisement published by Federation Furniture. The comparison is not easy to make. But the picture seems to come to this: in three cases, it was possible to make a fair comparison and find that the applicant's price was markedly cheaper than that of Federation Furniture; in another three cases, in which a fair comparison could easily be made, Federation Furniture's price

was significantly cheaper than that of the applicant; in five cases, the two prices were within a few dollars of each other; in two cases, Federation Furniture was cheaper, but its item was of lower quality than that of the applicant; in two cases, there was no comparable item offered by the applicant, so no comparison could be made; in the remaining six cases, comparison was rendered difficult because of differences in

the items - but, reading Mr Trigg's comments on the

differences, and making allowances for them, my impression is that the goods offered by the applicant offered comparable or better value than those of the respondent. Having regard to all of the above, I maintain the opinion, which I tentatively offered during the course of submissions, that there is not much in the comparison either way.

I should say that I do not think it is appropriate to determine the correctness of the sentence now under discussion by a minute comparison of the prices charged by the

respondent for particular items, as against prices charged by -

respondent for the purposes of its "liquidation" sale. It one, referring to the general level of prices adopted by the the applicant or other retailers. The statement is a general

must be remembered that the advertisement illustrates only a handful of what are called "thousands of pieces of furniture to choose from".

As a general proposition, the prices offered by the applicant are competitive with the "liquidation" prices -

offered by Federation Furniture. The general level of those prices is available elsewhere in Australia, if only from the applicant. Consequently, this statement is false and misleading.

The final matter relates to two statements concerning the quality of the furniture offered by Federation Furniture. The first, the opening sentence of the passage quoted above, involves the statement that Federation Furniture is: "An importer of quality hand made solid teak and mahogany furniture." Secondly, the passage contains the statement: "All our furniture is hand made quality teak and mahogany".

Evidence was adduced on behalf of the applicant concerning two items of furniture purchased by M r Trigg from Federation Furniture at its Sydney Showground sale. They consist of a table and a kitchen dresser. Mr Trigg took the two items to the Forestry Commission at Pennant Hills. They were subjected to analysis by a technical officer of the

challenged. I need not set them out in detail. It is Commission, John Marchant. M r Marchant's findings were not

sufficient to say that he found an excessive core water content. He also noted distortion in the timber which increased during the period that the furniture was in his possession. Anybody looking at the photographs of this furniture would say that it was not of good quality.

- To establish that Federation Furniture has sold two

inferior quality items of furniture does not falsify the statement that it is an importer of quality furniture. It is compatible with such a statement that, from time to time, the person will also import furniture of inferior quality. Accordingly, I do not think that there is any misleading conduct associated with the opening sentence of the passage.

In relation to the second sentence to which I have referred, a different situation obtains. The sentence makes an unequivocal statement that "all" furniture offered by Federation Furniture is quality teak or mahogany.

Counsel for the respondents argue that this sentence should not be regarded as capable of giving rise to a false representation; that the word "quality" is simply puffery, and would be so understood by a reader. I agree that this is a case where it is difficult to determine objectively whether particular goods meet the advertiser's description. However,

it would be wrong to regard the sentence as devoid of -

objective meaning.	I think a reader would take the sentence
as claiming that all furniture offered by the advertiser is,

firstly, teak or mahogany and, secondly, of good quality.

It is not necessary to determine the precise limits of what constitutes good quality furniture. The furniture purchased by Mr Trigg at the Sydney sale was clearly not of good quality. The sentence under present discussion,

including as it does the word "all", contains a false -

representation.	Accordingly, I find this claim also made
out.

There has been some discussion with counsel as to the appropriate form of orders if the applicant succeeds. I am not prepared to make orders in the precise form suggested by counsel for the applicant, but I have used the draft short minutes they prepared to assist me in drafting what I consider to be appropriate orders.

I make the following orders:

1.   The Court declares that advertisements in the

form published on behalf of Federation

Furniture Company on the dates and in the

publications set out in the schedule below were

misleading or deceptive, or likely to mislead

or deceive in contravention of 13.52 of the

Trade Practices Act 1974, insofar as the -

advertisements:  (a) made the statement "importers total liquidation";

(b)	made the statement "up to 70 per cent off normal retail prices";
(c)	made comparisons of prices between what were said to be a "normal retail" prices and "liquidation" prices and;

(d) made the statements: 

(i)   "We now find ourselves in a position where we must liquidate our entire stock of cottage and reproduction style furniture this week";

(ii)  "These liquidation prices are unavailable anywhere else within Australia"; and

(iii)"All our furniture is hand made quality teak and mahogany".

SCHEDULE

DATE	PUBLICATION	LOCATION
13/2/93	The Canberra Times	Canberra
23/2/93	The Daily Advertiser	Wagga Wagga
25/2/93	The Daily Advertiser	Wagga Wagga
27/2/93	The Daily Advertiser	Wagga Wagga
27/2/93	The Daily Advertiser	Wagga Wagga
10/3/93	The Newcastle Herald	Newcastle
11/3/93	The Newcastle Herald	Newcastle
12/3/93	The Newcastle Herald	Newcastle
13/3/93	The Newcastle Herald	Newcastle

9/6/93	The ~ydney	Morning Herald	Sydney
9/6/93	The Daily Telegraph Mirror	Sydney
10/6/93	The Sydney Morning Herald	Sydney
10/6/93	The Daily Telegraph Mirror	Sydney
11/6/93	The Daily Telegraph Mirror	Sydney
12/6/93	The Sydney Morning Herald	Sydney
12/6/93	The Daily Telegraph Mirror	Sydney
13/6/93	The Sunday Telegraph	Sydney
26/6/93	The Daily Advertiser	Wagga Wagga
26/6/93	The Canberra Times	Canberra

2.    The Court orders that the first respondents, by themselves, their servants and agents, be

-

restrained from engaging in conduct that is

misleading or deceptive, or likely to mislead
or deceive, by falsely representing:

(a)	that furniture offered for sale by them is sold by way of an "importer's total liquidation" or at a "liquidation sale"; or that the prices are "liquidation prices"; or that the sale is being conducted under extraordinary circumstances compelling the immediate realisation of all the first respondents' stock;
(b)	that the furniture is usually only available at prices higher than those stated in the advertisement;
(c)	that the general level of prices offered by the first respondents is unavailable elsewhere in Australia; or

(d) that all furniture offered for sale by .the -

first respondents is quality furniture.

3.   The Court orders that the fourth respondent, Donald Andrew Franks, be restrained from being knowingly concerned in any conduct enjoined by order 2.

The Court orders that the first and fourth I reserve leave to the second and third respondents to apply for an order for payment of any costs incurred by them which were additional to costs incurred on behalf of the other respondents. - respondents pay the applicant's costs of this
proceeding.

4. 

I certify that this and the preceding nineteen (19) pages
are a true copy of the Reasons for Judgment

of the Honourable Justice Wilcox.

Associate:

Dated:	9 September 1993
Counsel far the Applicant:	N Francey and R Weaver
Solicitors for the Applicant:	Hellmrich & Hickey
Counsel for the Respondent:	R Macfarlan QC and

. S Donaldson

Solicitors for the Respondent: Primrose Couper Cronin

Rudkin

Dates of hearing:  8-9 September 1993