Wilkinson, L.E. v Katies Fashions (Australia) Pty Ltd
[1986] FCA 318
•28 JULY 1986
Re: LOUISE ELIZABETH WILKINSON
And: KATIES FASHIONS (AUST.) PTY. LTD.
And: ARPEL AUSTRALIA PTY. LTD.
Nos. VG56-59 and VG60-63 of 1985
Trade Practices
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Jenkinson J.
CATCHWORDS
Trade Practices - consumer protection - prosecution - false representation as to composition of goods - women's skirts - wool fibre content lower than that stated on label - whether contravention due to reasonable reliance on information supplied by another person - whether defendant took reasonable precautions and exercised due diligence to avoid contravention.
Trade Practices Act 1974 - ss. 53(a), 85
Darwin Bakery Pty. Ltd. v. Sully (1981) 51 F.L.R. 90
Barton v. Croner Trading Pty. Ltd. (1984) 54 A.L.R. 541
Yorke v. Lucas (1985) 61 A.L.R. 307
Korczynski v. Wes Lofts (Aust.) Pty. Ltd. (1985) 62 A.L.R. 225
HEARING
MELBOURNE
#DATE 28:7:1986
Counsel for the Prosecutor : Mr. M.E.J. Black Q.C. Mr. R.R.S. Tracey
Solicitor for the Prosecutor : Director of Public Prosecutions
Counsel for the Defendants : Mr. R. Merkel Q.C. Mr. K.W.S. Hargrave
Solicitors for the Defentants : Messrs. Arnold Bloch, Leibler
JUDGE1
Trial of eight informations for offences alleged to have been committed by contravention of s.53(a) of the Trade Practices Act 1974.
All of the informations concern labels, attached to the inner surfaces of women's skirts. On each of the labels are printed the names of the several fibres (as, for example, wool and nylon) of which the skirt is composed, and opposite each name is printed a percentage, as "50%" or "20%" or as the case may be. Each label mis-states the proportions in which the fibres are combined to form the material of which the skirt was made. Each of 4 pairs of the informations concerns a sale by retail of a single skirt so labelled. One of each pair is against Katies Fashions (Aust.) Pty. Ltd. and the other information is against Arpel Australia Pty. Ltd.. That is because at relevant times the business name "Katies" was owned by those two companies and there was uncertainty as to which company was carrying on, under that business name, the retail business in the course of which the skirt was sold. That uncertainty was dispelled during the hearing and leave has been sought by the prosecutor, and will be granted, to withdraw four of the informations.
On 14 March 1984 and on 7 June 1984 Arpel Australia Pty. Ltd. (which I shall call "Arpel") was selling clothes by retail in a shop called "Katies" at 284 Bourke Street Melbourne. On each of those two days a lady selected and bought a skirt from those exposed in the shop for sale. To the inner side of each skirt, near the waist band, were attached, together, three small slips of material. On one were recorded numerals concerning the size of the figure for which the skirt was designed, on another was printed the word "Katies", and on the third were printed the following:
"50% Wool 30% NYLON 20% other fibres DRY CLEAN ONLY"
On 8 June 1984 in another shop called "Katies" which Arpel conducted at 283 Bourke Street Melbourne a similar selection and purchase was made, of a skirt from those exposed in the shop for sale. That skirt had attached to its inner side, near the waist band, three small slips of material. There were a slip on which "Katies" was printed and a slip on which was printed the fibre composition of the material. Those two slips were indistinguishable from the corresponding slips on the two skirts to which reference has been previously made. The third slip recorded information concerning size of the same kind as the information on the size slips attached to the other two skirts. On 31 March 1984 Katies Fashions (Aust.) Pty. Ltd. conducted a shop called "Katies" at Port Noarlunga in South Australia. On that day a man selected and purchased a skirt from those exposed for sale in the shop. Three small slips of material were attached to the inner surface of the skirt, near the waist band. Two of the slips were indistinguisbable from two of the three slips on each of the skirts to which reference has been previously made. The third slip recorded information concerning size of the same kind as the information on the size slips attached to the other three skirts.
In relation to each of the four sales the information laid against the company by which the shop was conducted and the skirt sold is of an offence against s.79(1) of the Trade Practices Act 1974: that on the date and at the place of sale the defendant, being a corporation within the meaning of that Act, did, in trade or commerce, in connection with the supply of the skirt, falsely represent that the skirt was of a particular composition, namely 50% wool, 30% nylon and 20% other fibres, contrary to s.53(a) of the Trade Practices Act 1974. In each case the evidence established, beyond reasonable doubt, that substantially less than one half of the material of which the skirt was made was wool.
Section 53(a) of the Trade Practices Act, 1974 provides:
"A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services -
(a) falsely represent that goods are of a particular standard, quality, grade, composition, style or model or have had a particular history or particular previous use;"
The evidence showed that each of the skirts had been made in Australia out of material imported from Italy as a single consignment. The evidence also showed that all the legal transactions, in pursuance of which the material had been bought, imported, and made up into skirts and the skirts vested in the two sellers of the four skirts, were undertaken by members of a group of associated companies which were either controlled by Katies Pty. Ltd. or in which Katies Pty. Ltd. was entitled to 49 per centum of the shares. Towncraft (Distributors) Pty. Ltd. ("Towncraft"), a wholly owned subsidiary of Bruck (Australia) Ltd., which Katies Pty. Ltd. controlled, placed a written order for purchase of 4,000 metres of the material from Ci No Tex S.N.C. of Florence, Italy. Katies Pty. Ltd. contracted with Skirtmaster Pty. Ltd., in which Katies Pty. Ltd. held 49 per centum of the shares, for the manufacture of 3,000 skirts out of the material ordered from Ci No Tex S.N.C.. Towncraft sold the material to Skirtmaster Pty. Ltd. after it had been imported into Australia and the latter company made out of it the 3,000 skirts. The written order for purchase of the material from Ci No Tex S.N.C. specified the composition of the material thus: "20 wool, 55 poly, 25 acrylic". The evidence established, first, that a deviation by as much as two and one half per centum above or below a specified percentage of wool fibre in clothing material was regarded in the clothing material trade in this country as acceptable and, second, that the wool fibre content of the material in the four skirts which are the subjects of the informations was in no case below 18 per centum. The evidence was that the wool content of three of the four skirts was just below 20 per centum and that the wool content of the skirt purchased on 14 March 1984 was 40 per centum. The latter, surprisingly high percentage was not explained in evidence : the falsity upon which each information was grounded was the deviation from the 50 per centum specified on the label, not the deviation from the 20 per centum specified in the order placed by Townmaster with Ci No Tex S.N.C..
It was the primary submission of Mr. Merkel Q.C., who appeared with Mr. Hargrave for both defendants, that in each case the defendant vendor of the skirt had made no false representation concerning the composition of the skirt, because the vendor had known nothing of that composition except that the vendor believed that the content label had been placed on the inner surface of the skirt by the manufacturer of the skirt in order to comply with the requirements of State laws which make it a criminal offence to sell or offer for sale such a chattel unless information as to the wool content is printed or stamped on, or woven into, or attached to the chattel. The defendant vendor knew of no reason why such a label should contain incorrect information, but had no knowledge by which it might have determined whether or not the statements on the label were correct, it was submitted.
The factual basis of the submission is consistent with the evidence. Skirtmaster Pty. Ltd. delivered the 3,000 skirts it had made to Katies (Distributors) Pty. Ltd., a wholly owned subsidiary of Katies Pty. Ltd.. The labels had been attached to the skirts by the manufacturer before delivery to Katies (Distributors) Pty. Ltd.. Each of the four skirts the subjects of the informations was later delivered by Katies (Distributors) Pty. Ltd. to the defendant by which that skirt was subsequently sold, as one of a batch taken from the 3,000 skirts. Each of the defendants was a wholly owned subsidiary of Katies Pty. Ltd.. Neither defendant had any contact or dealing with Skirtmaster Pty. Ltd. in relation to that defendant's acquisition of any of those batches. Each dealt with Katies (Distributors) Pty. Ltd.. Neither defendant received, before the skirts had been sold by retail, any information concerning the proportions of the several fibres of which the material consisted, except the information on the content labels. It was the responsibility of Skirtmaster Pty. Ltd. to ascertain what those proportions were and to prepare and attach a content label accordingly. That responsibility was invariably assumed by Skirtmaster Pty. Ltd. when it manufactured clothing for a member of the group of companies controlled by Katies Pty. Ltd. and in my opinion found legal expression as an implied term of the contract with Katies Pty. Ltd. for manufacture of the 3,000 skirts.
Mr. Merkel submitted that the defendant vendor of the skirt, unlike the appellant in Darwin Bakery Pty. Ltd. v. Sully (1981) 51 FLR 90 who placed in newspapers advertisements which were misleading, did not know anything of the information expressed in the content label except that it was information, as to the proportions in which several kinds of fibre had been combined in the making of the skirt material, which the defendant vendor thought, and had every reason to think, correct. The information being incorrect, the false representation was not that of the defendant vendor, it was submitted, because that vendor had not intended that any particular information as to content should be exhibited on the skirt, and had certainly not intended that any but correct information should be exhibited. The defendant vendor did not know, it was submitted, that a 50 per centum wool content was claimed on the label, and therefore the vendor made no representation of such a content. The Darwin Bakery Case is authority for the proposition that knowledge of the falsity of a statement one makes is not an element of a contravention of s.53, but not, it was submitted, authority for the proposition that knowledge of the content of a false statement is not an element of such a contravention. Although the defendants' officers and servants knew that the woollen skirts they had for sale in their shops had attached to them a content label each, because that was required by law and was always done, the mind of none of those persons had conceived what was printed on such a label as information which a defendant had, or which a defendant was seeking to communicate by means of the label, it was submitted. In those circumstances, it was submitted, neither defendant had by exposing the skirts for sale made any representation concerning the fibre content of the material of the skirts. Each defendant could be seen, as the retailer in Barton v. Croner Trading Pty. Ltd. (1984) 54 ALR 541 was seen by the Full Court in that case, at 554, to be merely "a convenient medium" or "channel for communication" through which the manufacturer made a false representation concerning incorrectly labelled goods, it was submitted. And it mattered not, according to the submission, that it was not the manufacturer's name which was sewn on to the skirt beside the content label, but the retailer's, for Korczynski v. Wes Lofts (Aust.) Pty. Ltd. (1985) 62 ALR 225 provided authority for the proposition that it is not an element of an offence defined by s.53(a) that the identity of the defendant as the maker of the false representation should have been disclosed to those to whom the representation was made.
If it be assumed that the proposition last stated is correct, yet that proposition is not in my opinion inconsistent with the view, which I hold, that by associating itself with a representation made by another, whose existence is not disclosed to those to whom the representation is made, a corporation may itself make that representation. The act which constitutes the making by a corporation of a representation may be merely the disclosure to those to whom the representation is made of the identity of that corporation in circumstances which indicate to consumers that the corporation is thereby placing itself in the position of maker of the representation. In this case it is the offering for inspection and for sale in the shop of a skirt upon which are physically conjoined the "Katies" label and the content label which, as I find, constitutes the making by the defendant, in each case, of a representation that the wool fibre content of the skirt material is 50 per centum. It is unnecessary to express - and I do not express - any opinion on the questions whether the defendant would have made any representation concerning fibre content if there had been no "Katies" label on the skirt and there had been attached to each skirt only the other two labels, or the other two labels and a third label on which were printed the words "Skirtmaster Pty. Ltd." or the words "Made By Skirtmaster Pty. Ltd." or the words "Made By Jaeger" (to take at random the name of a manufacturer which no member of the public could reasonably suppose to be the retailer by whom the shop was being conducted). Whatever the answer to any of those questions, it is in my opinion of decisive importance, in reaching the conclusion that the defendant in each case made a representation as to the wool fibre content, that the conjunction of the "Katies" label and the content and figure size labels proclaimed, in the absence of anything else to indicate the identity of the maker of the skirt or of the material, Katies' assumption of responsibility for the statements which the words and figures on those other two labels expressed. Neither defendant suggests that the "Katies" label was so conjoined without its authority, or that its officers were unaware that a content label was conjoined to the "Katies" label. To authorise that conjunction and to expose the skirts, so labelled, to the public for inspection and sale is in my opinion to make the representation, by the person for whom or which the word "Katies" is a trade name and who or which is conducting the shop where the skirts are exposed for retail sale, that the wool fibre content of the skirt material is 50 per centum, even if the officers and servants of that person knew nothing of fibre content except that they had every reason to suppose the labels correct.
The significance of the Katies label is not that its display effected a communication to the consumer of the identity of the person by which the statement of wool content was made, but that its display affords, in the circumstances, evidence of the defendant's intention that it, the defendant, make that statement of wool content to consumers, and evidence that it did make that statement. Because it is not an element of an offence defined by s.53(a) that the identity of the person charged with its commission as the maker of the false representation should have been disclosed to those to whom the representation was made, there may be, in my opinion, a single event which constitutes a false representation made by each of two persons concurrently (to adapt a word used in Barton v. Croner Trading Pty. Ltd. (1984) 54 ALR at 553), not as parties to the commission of one offence, but each as the only party to the commission of a separate offence. Each may be said, I think, to "represent" - to cause to be asserted as fact in the face of consumers - that the wool content of the skirt is 50 per centum thereof, the manufacturer of the skirt by affixing the content label to the skirt and projecting it into the course of trade in the reasonable expectation that it would be exposed for inspection and retail purchase by consumers in this country and by the fulfilment of that expectation, the defendant vendor by exposing the skirt, with conjoined labels of the vendor's trade name and of the wool content affixed, for that inspection and purchase.
Mr. Merkel sought to support his submission by reference to the observations of Mason A.C.J., Wilson, Deane and Dawson JJ., in Yorke v. Lucas (1985) 61 ALR 307, concerning the liability under s.52 of the Trade Practices Act 1974 of a corporation which transmits to a consumer false information supplied to it by another. A corporation to which reference is made in those observations as "the Lucas company" had been held by the Federal Court of Australia liable in damages to the purchaser of a business for contravention of that section, by transmitting to the purchaser information supplied to it by the vendor, for which it was acting as agent to negotiate the purchase. The Lucas company had not appealed to the High Court, which was concerned with the question whether a director of the Lucas company had been involved in its contravention of s.52. But the four justices to whom I have referred said (61 A.L.R. at 309-310):
"It should be observed at the outset that the facts as found by the trial judge raise the question whether the Lucas company itself was guilty of any contravention of s.52. It is, of course, established that contravention of that section does not require an intent to mislead or deceive and, even though a corporation acts honestly and reasonably, it may none the less engage in conduct that is misleading or deceptive or is likely to mislead or deceive: Hornsby Building Information Centre Pty. Ltd. v. Sydney Building Information Centre Ltd. (1978) 140 CLR 216 at 228; 18 ALR 639 at 647; Parkdale Custom Built Furniture Pty. Ltd. v. Puxu Pty. Ltd. (1982) 149 CLR 191 at 197; 42 ALR 1 at 5. That does not, however, mean that a corporation which purports to do no more than pass on information supplied by another must nevertheless be engaging in misleading or deceptive conduct if the information turns out to be false. If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive. Had the Lucas company appealed from the judgment against it, it may have been necessary to form a concluded view on that question. It has not, however, done so and it is possible to resolve this appeal against the judgment in favour of Lucas upon the assumption that the finding of a contravention of s.52 on the part of the Lucas company was correct. As will be seen, that is so, notwithstanding that the contravention was said to have taken place solely by reason of the conduct of Lucas."
The passage just quoted was said to be consistent with the submission advanced by Mr. Merkel that the affixing of the "Katies" label could not justify the conclusion that the defendant had adopted as its own the statement which the content label makes about the wool content of the material. If it had appeared, whether by label or some other means, to anybody who should have examined the skirt in the shop, that a person other than "Katies" was the manufacturer or supplier of the material or the manufacturer or wholesale supplier of the skirt, the circumstances might have suggested - I need express no opinion - that "Katies" was not the source of the information on the content label and that "Katies" did not profess to assert any belief in the truth of that information. But where, as in these cases, nothing appears to give any clue to the identity of any person, except the defendant vendor, connected with the making or the commercial origins of the skirt or the material, the conjunction of the "Katies" label and the content label must in my opinion be understood to signify an assumption by "Katies" of responsibility for the factual assertions expressed on the content label.
Section 85(1) of the Trade Practices Act 1974 provides:
"Subject to sub-section (2), in a prosecution under this Part in relation to a contravention of a provision of Part V, it is a defence if the defendant establishes -
(a) that the contravention in respect of which the proceeding was instituted was due to reasonable mistake;
(b) that the contravention in respect of which the proceeding was instituted was due to reasonable reliance on information supplied by another person; or
(c) that -
(i) the contravention in respect of which the proceeding was instituted was due to the act or default of another person, to an accident or to some other cause beyond the defendant's control; and
(ii) the defendant took reasonable precautions and exercised due diligence to avoid the contravention."
Sub-section (2) conditions the right to rely on some of the exculpatory provisions of sub-section (1) upon compliance with certain requirements as to notice.
Each defendant sought to establish by way of defence that the contravention the subject of each information laid against it was due to reasonable reliance on information supplied by Skirtmaster Pty. Ltd.. By attaching the content labels to the skirts the latter company had informed the retailers that the fibre content of the skirt material was as shown on those labels and the defendant retailers relied on that information when they set the skirts, so labelled, before their customers. It was submitted that the defendants' reliance on the information on the content labels was reasonable in the circumstances. The defendants had no information from any other source as to the fibre content of the material, and a retailer of clothing not infrequently lacked such information about articles ordered from clothing manufacturers, the evidence showed. Manufacturers invariably assumed the responsibility of attaching content labels to clothing, and I am persuaded that until after the sales of these four skirts the officers and servants of the defendants had not heard of error by an Australian clothing manufacturer, in the discharge of that responsibility, which resulted in mis-statement to the public of the fibre content of clothing material.
In these cases it was error by the manufacturer which resulted in the mis-statement of the fibre content. There was uncontradicted evidence that Skirtmaster Pty. Ltd. had received no written statement as to what that content was. The practice of the servants of Skirtmaster Pty. Ltd. at the time when it contracted to make the skirts was to ascertain the fibre content of material by telephone enquiry of the supplier of the material, if that information had not been received in a document. The servant most likely to have made such an inquiry, if one were made, concerning this material was not called as a witness. She was believed to be living in Argentina. The precise cause of the error was not shown by the evidence. Having never known of error in content labelling before the present instances, the directors of Skirtmaster Pty. Ltd. had prescribed no more elaborate system to prevent error of that kind than assigning to a particular servant of that company the functions of ascertaining the fibre content and of arranging for the preparation of the labels and the fixing of those labels to the skirts. It was that servant who would, if necessary, make a telephone enquiry of the person who had supplied the fabric. The directors of the defendant companies were not shown to have had at the relevant times any knowledge of the system Skirtmaster Pty. Ltd. employed. They did, however, believe that no error had occurred in content labelling by any of the manufacturers with whom their group of companies dealt. The managing director of Katies Pty. Ltd., and a director of each defendant company at relevant times, Joseph Brender, gave the following evidence:
"You were aware, were you, of the somewhat informal system which your suppliers used to find out what the fabric content of the goods was?---To be honest with you, I was not.
I see. Was it your state of mind, as chairman of directors of Katies Fashions, that really somehow or other they got it right, but you were not sure how?---That is correct, yes.
So you were not able to, as it were, assess this, to see whether it was working by good chance or by good design. All you knew was that it seemed to work?---That is correct."
In determining whether the reliance was reasonable which the defendants placed on the information Skirtmaster Pty. Ltd. supplied on the content label sewn on to each skirt, the Court must bear in mind that the defendants were forbidden - and ought to have known that they were forbidden - by s.53(a) to falsely represent the fibre content of the materials of which their stock in trade was made. The question is what was reasonable in all the circumstances for a corporation laid under the statutory command expressed in s.53(a). Although the defendants' directors had for many years been encouraged to rely on the manufacturers' content labels for information as to the fibre content of fabrics by the complete absence of report of error in information of that kind communicated by that means, general experience of human affairs must have stimulated in a reasonable mind giving attention to the discharge of the obligations laid on the defendants by s.53(a) an apprehension that an error might be made which would result in incorrect labelling by the manufacturer. An inexpensive means of reducing the risk that error would result in misrepresentation to consumers was available. If each defendant had observed a practice, first, of obtaining, either from the person who supplied the fabric to the manufacturer or, if that were not possible, from the manufacturer, a written statement, of the fibre content of the material of clothing which that defendant proposed to offer for sale by retail, which was signed by a responsible officer or servant of the person making the statement, and second, of comparing the fibre content labels on samples of the clothing with the information in the written statements as each batch of clothing was delivered, the risk of misrepresentation of fibre content to consumers by error in labelling would have been substantially reduced at little cost. The risk would not have been completely eliminated by the observance of such a practice. But the failure to take that means of reducing the risk was in my judgment unreasonable. In all the circumstances I cannot regard the reliance which either defendant placed on the information supplied by the manufacturer by means of the labels as reasonable. For the same reasons I cannot find the defence specified in s.85(1)(c), upon which the defendants also relied, to have been made out : neither defendant took reasonable precautions or exercised due diligence to avoid the contraventions.
A good deal of evidence was adduced of a discovery by Kevin John Perrott of incorrect wool content labelling on a "Katies" skirt, of his communications with Mr. Brender on the subject, and of the steps taken, in consequence of those communications, by Katies Pty. Ltd. and the companies it controlled to prevent mis-statement of the wool content of goods sold by those companies. These events occurred in 1983 and in 1984, before the commission of the contraventions which are the subjects of the informations. Mr. Perrott's discovery and the communications which passed between him and Mr. Brender and other representatives of what may perhaps be called the Katies group of companies resulted, not in a suspicion that accidental mistake on the part of those responsible for labelling manufactured goods had caused mis-statement of wool content to the public, but in a suspicion that fraud on the part of some foreign suppliers of imported fabrics had caused the importer to believe the wool content to be that for which he had contracted, whereas that content was in fact substantially less. Evidence was adduced and submissions advanced for and against a conclusion that the Katies group of companies had acted reasonably in response to the information Mr. Perrott communicated to them. It is unnecessary to express an opinion about that response, since I have concluded that there was a lack of reasonableness in the course which each defendant took before it had any warning that fabric content might have been mis-stated, and the response was not directed to achieving correction of mis-statement of the fabric content of skirts which were already in the retail shops - as these four skirts were - when the response was made.
Finally, it should be observed that, in indicating a system by the observance of which each defendant might have reduced substantially the risk of misrepresentation of fibre content by error in labelling, I made no attempt to suggest what might be the best system for that purpose. I was concerned only to state conclusions that an inexpensive system of substantial utility could have been adopted and that the failure of each defendant to adopt such a system was unreasonable. Nor did I take into account - as the system presently being operated by the Katies group of companies does take into account, and takes advantage of - the circumstances that each defendant is a member of a group of clothing trade companies and that those members of the group which offer clothing for sale by retail receive their stock in trade from another member of the group, Katies (Distributors) Pty. Ltd., to which it may be reasonable to assign the functions of checking content labels on behalf of retailers who are members of the group.
The prosecutor has leave to withdraw each of the informations in the proceedings numbered VG56, VG58, VG59 and VG61 of 1985. Each of the other four informations, in the proceedings numbered VG57, VG60, VG62 and VG63 of 1985, I find proved. I adjourn the further hearing of each of the latter four informations to a date to be fixed, so that evidence and submissions concerning penalties may be received.
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