Re Paeson Pty Limited; Jeffrey Charles Farrow; George Spartalis and Componere Systems Pty Limited v Bergood Pty Limited; Gary James Foster; John Rex Martin; John William O'Brien; Christopher John Palmer and Richard Scott Cooper [1990] FCA 18 (5 February 1990)

FEDERAL COURT OF AUSTRALIA

Re: PAESON PTY LIMITED; JEFFREY CHARLES FARROW; GEORGE SPARTALIS and
COMPONERE SYSTEMS PTY LIMITED
And: BERGOOD PTY LIMITED; GARY JAMES FOSTER; JOHN REX MARTIN;
JOHN WILLIAM O'BRIEN; CHRISTOPHER JOHN PALMER and RICHARD SCOTT COOPER
No. N G333 of 1987
FED No. 13
Trade Practices Act, s.52

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Burchett J.(1)

CATCHWORDS

Trade Practices Act, s.52 - misrepresentation that machine to make bricks was new and an invention of a respondent - whether directors were "involved" within s.75B - claim dismissed against a director who did not know the representation was misleading.

Trade Practices Act 1974 ss.52 and 75B.

Paeson Pty Limited & Ors v. Bergood Pty Limited & Ors

HEARING

SYDNEY
5:2:1990

Counsel for the Applicants: Mr J.S. Van Aalst with

Mr M. Lynch

Solicitors for the Applicants: Messrs Hardings

Counsel for the Respondents: Mr C.J. Birch

Solicitors for the Respondents: Messrs Mansell & Norton

ORDER

The applicants bring in short minutes of orders in accordance with the reasons of the court.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

This case concerns bricks. Not the products of a sophisticated technology centred upon kilns operating at high temperatures. But bricks like those of the Tower of Babel or the land of Goshen, made of mud and dried by the sun. Such bricks need a means of cohesion - the ancient straw, or in these days of machines, the high pressure imparted by an hydraulic ram. The evidence suggests that bricks formed from suitably modified mud, hydraulically compressed, still have a place as low cost construction materials for the third world.

2. In 1986, in Sydney, the prospect of being able to supply a vast market with machines to make cheap bricks proved irresistible to a small group of people who included Mr Farrow, the second applicant. Mr Farrow was a businessman with a background in the construction industry. He was initially approached to provide finance for a proposed purchase by the third applicant, Mr Spartalis, of the right to manufacture a brick making machine (for sale throughout the world) said to have been developed by the first respondent Bergood Pty Limited, of which the second and third respondents, Mr Foster and Mr Martin, were directors. Quite soon after the commencement of negotiations, it became apparent that Mr Spartalis was not in a financial position to pursue the project. However, Mr Farrow's interest had been so stimulated that he decided to take it over himself, using as a corporate vehicle the first applicant, Paeson Pty Limited. Finance was to be provided through a company controlled by Mr Farrow, the fourth applicant, Componere Systems Pty Limited.

3. On 27 June 1986, a deed of assignment bearing the date 30 June 1986, was executed, by which, in consideration of the sum of $2,400,000.00, Bergood Pty Limited assigned to Paeson Pty Limited all its right title and interest in patent applications pending in Australia and 17 other countries, including the United States, the United Kingdom, Japan, Mexico, India and Cuba, but not including Switzerland, West Germany or Brazil. In clause 2 of the deed it was provided:

"2. In consideration of the premises the
Assignor transfers and assigns to the Assignee
all the right title and interest of the
Assignor in the invention called the Bergood
Brick Maker and the Assignor shall provide to
the Assignee all such technical information
relating to the design manufacture methods of
assemby installation testing and techniques as
to the use of the Bergood Brick Maker as shall
enable the Assignee to have the full benefit
and advantage of the assignment herein contained."

There was also an express release of the second respondent Gary James Foster "from the service of the Assignor", apparently so that he could provide technical assistance to Paeson Pty Limited; however, the deed does not indicate that there was any express obligation binding Mr Foster to render any particular assistance for any particular period.

4. The consideration for the assignment was not fully provided by Paeson Pty Limited with its own money. Instead, it entered into a deed of mortgage with Bergood Pty Limited, also bearing the date 30 June 1986, by which it acknowledged that it had received accommodation to the extent of $2,150,000.00 from Bergood Pty Limited and covenanted to repay that sum by instalments of $125,000.00 on 31 July 1986, $250,000.00 on 9 August 1986, $250,000.00 on 9 November 1986, $250,000.00 on 9 February 1987 and the balance on 31 May 1987. Interest was to be paid on any unpaid instalment at 18% per annum. Repayment was secured by a floating charge over all the assets of Paeson Pty Limited, and the deed contained various powers and provisions such as might be expected in a document of that kind. By clause 28 it was provided:

"The company (ie Paeson Pty Limited)
acknowledges that it has acquired all its
right title and interest in any patent rights
owned by the company in the Bergood Brick
Maker from the Mortgagee and the company
further acknowledges that payment by the
company to the Mortgagee of the moneys hereby
secured is a fundamental condition of the
continued ownership by the company of such
patents and patent rights and the company
acknowledges and agrees that in default of
payment of any moneys due and payable
hereunder on the due date or not later than
twenty-eight (28) days from the due date all
rights of ownership of such patents and patent
rights shall revert and be reassigned to the
Mortgagee absolutely for the Mortgagee's own
future use and benefit and all moneys paid by
the company prior to such default shall be
absolutely forfeited to the Mortgagee."

By way of further security, Bergood Pty Limited also required the directors of Paeson Pty Limited, the second applicant Mr Farrow and the sixth respondent Mr Cooper, to execute as of the same date a deed of guarantee of the obligations assumed by Paeson Pty Limited under the deed of assignment and the deed of mortgage.

5. When Mr Farrow first learned of the machine called the Bergood Brick Maker, he was introduced to Mr Foster as its inventor. Mr Foster did not disclaim that introduction. At about the same time, Mr Farrow was shown a glossy brochure put out by Bergood Pty Limited. The brochure asserted that the brick maker was "(t)otally new in both design and concept". It also contained the remarkable claim: "Brick Maker producers (sic) bricks or pavers literally anywhere at a rate of 500 per hour". Lest the reader might be tempted to read down as absurd the words "literally anywhere", the brochure continued: "use Bergood's Brick Maker to manufacture your own bricks from any cement-stabilised material formulations - even the soil from the site".

6. The applicants have sued under s.52 of the Trade Practices Act 1974 and upon counts of fraud at common law. (It should be noted here that, at the commencement of the hearing, Mr Spartalis was given leave to discontinue, costs being reserved, and that the remaining applicants do not now pursue any claim against the fourth, fifth and sixth respondents.) The central allegation in the case is that, in 1986, the Bergood Brick Maker was not new in design or concept, and that Mr Foster was not its inventor. On the contrary, the applicants say that Mr Foster simply copied a machine developed by a Swiss company, Consolid A.G. of Heerbrugg, in respect of which an application for a Swiss patent had been made on 12 September 1980, the patent having been granted on 15 August 1985. The Swiss company was active in the third world, the very area Bergood Pty Limited claimed its new concept was poised to penetrate and exploit.

7. The applicants called evidence from a Mr Richard Frost, a senior lecturer in mechanical engineering at the University of New South Wales, of a comparison made by him between the Bergood Brick Maker and a machine produced by Consolid A.G., known as the CLU 3000. No expert evidence was adduced on behalf of the respondents to contradict the evidence of Mr Frost. I accept without hesitation the views of Mr Frost, who considered that the two machines "are very similar, both at an overall conceptual level and at a quite detailed level of execution". On the basis of Mr Frost's analysis of the details of the construction of the two machines, I am satisfied that one is a copy (with some slight modifications) of the other. It is highly improbable that each could have been developed independently. (I note too that Mr Frost expressed the opinion that the Bergood Brick Maker was not capable of producing 500 bricks per hour. I accept his opinion on that aspect of the matter also.)

8. The evidence of Dr Guenther Scherr, an Austrian who is the principal of the Swiss company Consolid A.G., establishes that in 1977 a machine was produced for his company which was known as the CLU 2000. The idea for this machine had arisen from Dr Scherr's experience as an expert in soil stabilization in Iran, where he had noticed the destructive effects of erosion upon mud brick walls. Dr Scherr is not scientifically qualified, his doctorate being in law, but he has since 1959 pursued a career in many countries, mainly in the third world, investigating and utilizing methods of soil stabilization for road and building construction. His primary business has been concerned with the use of chemical additives for road surfaces, but as an extension of that business he decided to use his chemicals to make improved mud bricks, a decision which led to the production also of machines to manufacture those bricks.

9. The CLU 2000 involved the use of a paddle mixer, to mix the soil with the appropriate chemicals, from which the mixture was then shovelled by hand into a hopper. The hopper was located above a turntable bearing moulds, so that the soil could be directed straight from the hopper into a mould. The turntable would be turned manually by the operator a quarter turn, and the filling of the mould checked. A further quarter turn would then bring the mould directly under an hydraulic press, which would compress the material in the mould to make a brick. Upon release of the pressure, the turntable would be turned a third quarter turn to bring the mould above an hydraulic extrusion ram, which would extrude the finished brick simultaneously with the compressing of the next brick. A fourth quarter turn would bring the mould back into the filling position again. The power for the hydraulic rams was provided by a diesel engine.

10. Dr Scherr gave evidence that, between 1978 and 1980, his company undertook the development of an improved brick making machine known as the CLU 3000. Ouside engineering companies were engaged, but the ideas were those of Dr Scherr's colleague in Consolid A.G., a Mr Schmidheini, and in the latter stages Consolid A.G. made use of the services of an employee, a Mr Egel. According to Dr Scherr's evidence, the CLU 3000 was a natural evolution from the CLU 2000. In the CLU 2000, the table was turned manually; in the CLU 3000, this was done hydraulically. In the CLU 2000, the mixer and the hopper were separate, and manual loading of the hopper was required; in the CLU 3000 there was a kind of double mixer in which the mixing chamber was placed immediately above the hopper which served both for storage of the mixed soil and for feeding it into the mould. These were the main improvements made in the design of the CLU 3000. That the CLU 3000 could properly be regarded as a development from the CLU 2000 is confirmed by the evidence of Mr Frost.

11. During the period when Consolid A.G. was working on the realization of the CLU 3000, the business of chemical stabilization of soils used in road surfaces was continuing. That business brought Dr Scherr into contact with Mr Foster, who was then carrying on business in the field of road construction in Brazil. As an adjunct of his road building activities, Mr Foster conducted a factory which produced construction equipment requisite for his business. Equipment was also sold to outside purchasers. Over a period of years from about 1978 or 1979, Dr Scherr and Mr Foster pursued negotiations with a view to the possibility that Mr Foster, or a company with which he was associated, might become an agent for Consolid A.G. in Brazil. Of crucial importance for this case is evidence of a visit made by Dr Scherr to Mr Foster covering the period from 5 to 19 December 1979, and evidence of two visits by Mr Foster to Switzerland in 1980. I am invited on behalf of the respondents to conclude that Dr Scherr saw a prototype of the Bergood Brick Maker, invented by Mr Foster, when he visited Mr Foster's factory at San Jose dos Campos in Brazil in December 1979. Dr Scherr denies this, and I am invited on behalf of the applicants to conclude that Mr Foster learned the details of the CLU 3000 on his visits to Switzerland, on the second of which, according to evidence given by Mrs Scherr and Mr Egel, he inspected the machine at the factory where it was made and took a considerable number of photographs showing its features in detail.

12. Dr Scherr wrote to Mr Foster a number of letters before undertaking his journey to Brazil. A letter of 3 October 1979 mentions "our products and especially also the soil brick machine", apparently a reference to the CLU 2000. It goes on to say:

"In respect to the soil brick machine, we would
be very pleased to be informed about your
latest improvements and developments, if
possible with some photographs, because it may
be of interest to think about a taking over of
this machine for all other markets, too, once
it is certain that the quality of the bricks
is perfected."

I think the latter reference in the letter to a soil brick machine must relate to a machine produced by Mr Foster. Within a week, Dr Scherr writes again, on 10 October 1979, again referring both to soil brick plants of his company and to a machine of Mr Foster's. Concerning the latter he says:

"Regarding the soil brick machine, which you
have developed as a hand-operated compactor,
which should allow to make 3,000 bricks per
day, I think that especially under hot
climatic conditions it will be a terribly hard
work to realize the proper compaction of
cohesive soils by hand only and for this large
number of bricks per day. Nevertheless, such
a hand-operated equipment will be an
alternative where the costs of the
motor-operated machine will be too high.
Therefore we shall be pleased to get from you
some photographs and technical details on this
hand-operated machine as well as details on
your further development on the motor-based
brick machine."

In a further letter dated 19 October 1979 Dr Scherr writes:

"Thank you very much for your telephone calls
regarding the manufacturing of soil bricks.
We would appreciate it if you could send us
pictures of the soil brick plants, the
engine-driven as well as the hand-operated
one.
Due to the fact that one brick will have 2250
grams, it will be approx. 50% of the size of
our standard bricks as pressed in the soil
brick plant 'CLU 2000'. This means that with
one cubic metre of soil you will make more or
less 1,000 bricks."

13. This correspondence suggests that Dr Scherr, as would be expected in the light of his evidence that his company was then working on the creation of the CLU 3000, was interested in any developments Mr Foster might have achieved with brick making machines. That interest extended both to hand operated and powered machines. He particularly asked for pictures of both.

14. Dr Scherr kept a travel diary, the contents of which make it plain that it was a business record of Consolid A.G. It was kept on that company's stationery. It covers in meticulous detail every day of Dr Scherr's journey to Brazil and the work done by him there for his company. Much of it is concerned with a section of experimental or demonstration roadway constructed immediately outside Mr Foster's factory at San Jose dos Campos in order to test and display the use of the chemicals produced by Consolid A.G. Apparently, leading Brazilian officials were involved, and the President of Brazil was at one stage expected to attend. But although soil brick machines were clearly a secondary consideration for Dr Scherr, particularly at this time, they also are mentioned in the diary. Immediately after recording his arrival in San Jose dos Campos, Dr Scherr writes:

"First chance to look at the own brick presses
in his factory, which subsequently proved to
be unusable as they lack the required sealing
pressure. For cost reasons it was to be a
piece of equipment without mechanical power as
shown in the following illustrations."

I should point out that what I have quoted is from a translation, as the original was written in German, which doubtless explains the slight peculiarity of idiom in the first sentence. Following this passage, there have been glued to the page two colour photographs of what is obviously a hand press. It is painted yellow, with some writing and a band on it in a darker colour. Under the date Saturday 8 December 1979, Dr Scherr has recorded:

"In the morning first attempts at demonstrating
production of bricks at Gary's. It takes a
few hours before a concrete mixer can be
produced for the purpose. ... The pressure
created by a hand operated press by means of a
car jack hydraulic system of approximately 2
ton, spread over 3 bricks, is totally
insufficient. Nor does the eventual
modification with a bent lever achieve any
results.
Gary follows my recommendations only on the
last day and tries to press only one brick
with an available 10 ton hydraulic press and
that results in the required firmness of the
brick. This process is now going to be
developed further: however, it will be more
likely that they are going to purchase a piece
of equipment from us and copy it in Brazil, as
imports of machinery will also in future be
almost impossible if something similar can be
manufactured in the country itself."

Appended to this entry also are two colour photographs of what seems to be the same hand press, painted yellow, one of which shows that three bricks appear to have just been compressed in it. A group of people is seen standing around, among whom Mr Foster can be clearly identified. There are 35 other photographs attached to the diary, most of them related to the demonstration road, but no other photograph of any brick making machine.

15. Dr Scherr gave evidence that he saw the manually operated brick maker, but did not see any other brick making machine at Mr Foster's factory. His evidence is supported by his contemporary record, to the extent that, particularly in the light of the preceding correspondence, it seems probable if he had seen any other machine for making bricks he would have photographed it too, and referred to it in his travel diary. The references to the further development of the hand operated brick maker, and to the likelihood that Mr Foster would purchase a piece of equipment from Consolid A.G. and copy it in Brazil, seem also inconsistent with the proposition that Mr Foster had already completed the construction of a viable machine of his own very similar to the later CLU 3000. Other evidence in the case shows that there was nothing at all unlikely about the suggestion of copying, as Mr Foster had already copied and sold as his own product an Australian machine which he had imported into Brazil for the easy and rapid extrusion of moulded cement kerbing and guttering.

16. But Mr Foster gave evidence, supported by two other witnesses, that he had developed an hydraulically operated brick making machine, of which the Bergood Brick Maker subsequently built in Australia was merely an improvement with automation. He claimed that this was demonstrated to Dr Scherr, in whose presence some 150 bricks were made. He agreed at the hearing that the manual brick maker was also demonstrated to Dr Scherr and some bricks were made with it. The evidence showed that there were in Mr Foster's factory other experimental brick making machines which may not have been in working order, since at some stage parts were removed from them. It may be noted that Mr Foster's original affidavit did not refer to a demonstration of the hand operated machine, but only asserted Dr Scherr had seen the production of bricks by the "latest version". In evidence, Mr Foster denied that at the time he knew of the existence of the CLU 2000, and claimed that he knew nothing of Dr Scherr's working on a brick making machine. He said he thought Consolid A.G. "was only in chemical stabilization". This evidence is hard to reconcile with the correspondence to which I have already referred.

17. A difficulty about the suggestion that Dr Scherr may have copied, in the production of the CLU 3000, a machine seen on his visit to Brazil is that there is no evidence Dr Scherr photographed or made drawings of the machine he allegedly saw. Unless he had a quite remarkable mechanical mind and photographic memory, it is not easy to think the detailed similarities between the CLU 3000 and the Bergood Brick Maker, of which Mr Frost gave evidence, could have arisen from any merely general observations of the machine in operation.

18. But the respondents called two supporting witnesses. The first was a Mr Fittler, a concrete worker now living in Budgewoi. He said that in 1973 or 1974 he travelled to Brazil where he resided for ten years. During most of that period, he lived at the home of Mr and Mrs Foster, and worked for a company controlled by Mr Foster, operating kerbing and guttering machines. He recalled the demonstration road outside the factory, and he recalled seeing several machines in the factory that were for manufacturing bricks from earth and cement. He remembered operating one of these machines for about two days with Mr Foster's son, Mr David Foster. He could not recall the date when he first saw such a machine, but he estimated that he saw one of them in about the middle of the period he was residing in Brazil, and he recalled that "the brick-making machines that were driven by an engine were at the ... factory at the time that the demonstration road was constructed". Mr Fittler was cross-examined. He was an unimpressive witness. His evidence revealed, however, that Mr David Foster, to whom he had referred as working with the brick making machine, was in Australia during the hearing of the case. Mr David Foster was not called to give evidence. Mr Fittler's evidence also revealed that he did not see any other brick making machine demonstrated on the day of the demonstration, and indeed his evidence about that day was vague in the extreme. He seemed to know virtually nothing about who was there. Considering that a special stand had been erected for the important guests expected, this seems strange. He also did not seem to have recall of the earlier large experimental machines Mr Foster said he had constructed in the course of his development of a brick making machine.

19. The other witness called to support Mr Foster's version of the visit to the factory by Dr Scherr was a Brazilian engineer, a Mr Veneziani. Mr Veneziani said that he graduated in civil engineering from the University of San Jose dos Campos in November 1979, and accepted employment with a company connected with Mr Foster. When he started work, Mr Foster had in the factory the hydraulically operated brick making machine. He said the machine was shown to Dr Scherr, and about 150 bricks were made with it in his presence, as well as very few bricks with the manual machine. Asked about the colour of the hydraulic machine, he said he thought it was yellow, which is the colour of the manual machine shown in Dr Scherr's photographs. According to Mr Fittler, the hydraulic machine was painted green. Two photographs, at least one of which Mr Foster alleged was taken in June 1979, certainly do not show it as yellow, though the precise colour is hard to determine. According to Mr Veneziani's evidence, the hydraulic machine was demonstrated in an area outside the back of the factory near where the manual machine was also demonstrated. All the evidence confirms that the manual machine was in this area.

20. A striking inconsistency between the evidence of Mr Foster and Mr Veneziani emerged in cross-examination. Mr Foster had said that the hydraulic machine was powered electrically, but Mr Veneziani said it was powered by a diesel engine. The inconsistency is not due to someone's error of casual observation, for Mr Foster claims to have invented the machine and must therefore have known how it was powered, while Mr Veneziani claimed that he had on some occasion started the engine himself, and was even prepared to state his belief as to the make of the diesel motor. Another important inconsistency relates to the production of the machine Mr Foster claims to have invented. Mr Foster said that the hydraulic machine was "finished around about June '79", when he alleged it was photographed, and that a brochure showing it was prepared in October 1979. The second of the two photographs of this machine produced by Mr Foster showed, as he said, about five or six of the machines being manufactured. He alleged their production "would have started early '80". Yet Mr Veneziani said that the whole time he was working for Mr Foster "there was just one". He was there from November 1979 until late in the year 1981, and while he was there he helped Mr Foster develop the hydraulics for the brick making machine. Mr Veneziani's part in the development of the hydraulics is significant for at least two reasons: it shows that he would have been very much aware of what was happening in relation to this machine, and thus lends weight to his contradiction of Mr Foster's evidence that five or six of them were made, starting early in 1980; and it also raises the query whether a machine which required this further development could really have been demonstrated making bricks, as claimed, in December 1979.

21. The suggestion that the concept of the CLU 3000 might have been gleaned by Dr Scherr from an inspection of Mr Foster's machine during his visit at San Jose dos Campos between 5 and 20 December 1979 meets, also, the difficulty that there have been produced quotations from two Swiss engineering companies, dated respectively 19 December 1979 and 21 December 1979, for the construction of prototypes of the CLU 3000. Dr Scherr did not get back from Brazil to Zurich until the evening of 20 December 1979. It is improbable he could have communicated the concept from Brazil quickly and effectively enough to have led to the obtaining of these quotations so soon.

22. The applicants place particular reliance on evidence given by Mrs Scherr and by Mr Egel. According to their account, Mr Foster visited Dr Scherr in Switzerland on 30 December 1980, when Mr Egel, who was then employed by Consolid A.G., drove Mr Foster, together with Mrs Scherr, to the factory where the CLU 3000 was under production. Mr Egel demonstrated the machine to Mr Foster who took polaroid photographs of it from all angles, including from under it. He did so in such detail that Mr Egel asked Mrs Scherr whether he was allowed to take so many pictures. As she did not know, he telephoned Dr Scherr, who did not object because of the business relationship at that time between Consolid A.G. and Mr Foster.

23. Mr Foster denied that he took photographs of the CLU 3000, and that he ever saw the machine. He admitted, however, that he did visit Switzerland about 30 December 1980. He said he was taking some soil to Dr Scherr to be tested, and that he was doing this while on his way to Australia. He said: "I was asked did I want to go and have a look at the brick making machine." As a result, "arrangements were made that Mr Egel would take me around the following morning" before driving him to the railway station. Mr Foster then described going to Mr Egel in the morning, when he said there was a difficulty in getting Mr Egel's car started because of the extreme cold, but eventually the car was started, and they went to the factory. However, according to Mr Foster, they were unable to gain access, so they came back without his ever having seen the machine. Asked whether Mrs Scherr accompanied them, he replied: "I do not think Mrs Scherr was there".

24. Mr Foster's account admits that he was invited to go to see the CLU 3000. He also admitted that he possessed a polaroid camera, although he said he had probably not taken it to Switzerland. The admission that he had a polaroid camera was inevitable, or virtually so, since some of the photographs tendered by him were of that kind. But there is no reason to think Mrs Scherr or Mr Egel would have known he possessed a polaroid camera unless he had it with him at the time. The admission that he was invited to look at the machine raises the question whether Dr Scherr would have issued such an invitation if he had been conscious of having stolen the idea of the CLU 3000 from Mr Foster himself. It may be that the answer to this point is that Dr Scherr may well have thought there was no objection to his utilizing Mr Foster's ideas because of the relationship between them; however, in that event one would have expected the conversation to have included some acknowledgement of the origin of the machine. But there is no suggestion Dr Scherr in any way gave credit for the design of the new brick maker to Mr Foster himself. A mere frank invitation to see Dr Scherr's new CLU 3000 is not really consistent with the respondent's case.

25. There are a number of other considerations which support the applicants. The negotiations evidenced by the letters which were sent by Dr Scherr to Mr Foster, over a lengthy period, strongly suggest that the CLU 3000 was of real interest to Mr Foster. This could hardly have been the position had the facts been as he alleges. In a letter from Consolid A.G. to Mr Foster, sent by Dr Scherr dated 4 May 1981, after discussion of a further demonstration road and a proposal to form a Brazilian company (in which plainly it was contemplated both Dr Scherr and Mr Foster would be involved) to manufacture the products of Consolid A.G. locally, it is stated:

"Regarding the soil brick plant 'CLU 3000',
there will be the possibility to start a
production of this equipment in Brazil, based
on the drawing of Consolid A.G. For each
machine built in Brazil, you will have to
credit to Consolid A.G. SFr.500 - for a
minimum of e.g. 100 machines per year."

A further letter dated 21 May 1981 refers to a telephone call from Mr Foster "informing us that you agree with the conditions we have offered and that you wish to receive our detailed agreements". The letter then proceeds to elaborate the proposal in terms suggestive of the inference that Mr Foster was understood to be more interested in the brick making machine than in the chemicals. It is made clear that Mr Schmidheini required a down payment in Swiss francs, although Dr Scherr was prepared to deal in the Brazilian currency. The letter confirms that for "the know-how and licence agreement regarding the manufacturing of the soil brick plant 'CLU 3000'" a minimum royalty would be required by Consolid A.G. of 500 Swiss francs for a minimum of 100 machines per year, that is 50,000 Swiss francs. If the design of the CLU 3000, down to the quite minute details enumerated by Mr Frost in his evidence, were simply a copy of a machine invented by Mr Foster and demonstrated by him in the course of Dr Scherr's 1979 visit to San Jose dos Campos, the impudence of this correspondence would be astounding. But it is just at this point of the negotiations that Mr Foster departed from his normal practice of replying to letters only by telephone, and sent a written reply bearing the date "June 8th", being admittedly 8 June 1981. The letter commences:

"Regarding my telephone call to you on the 4th
June 1981. As it is impossible at this time
to send cash to Mr Schmidheini it may be
possible that we send some 20 Mini-Pavers at a
cost way below our selling price ... . This
could be one way of us starting quickly, as I
already have told you if we cannot do
something soon I will have to go ahead with my
machine and leave the 'Road Programme' to 'D.S'."

The reference to D.S is a reference to a competing chemical for road surfacing, but the reference to "my machine" must be a reference either to the manually operated brick maker Mr Foster had already shown Dr Scherr, or else to some other brick maker which Mr Foster could "go ahead" to produce. In the context, this is clearly regarded as an alternative to be pursued only if the negotiations for production of the CLU 3000 should unfortunately break down. The reluctant conclusion "I will have to go ahead with my machine" is hardly what would be expected of a man who had already developed for marketing a machine of which the CLU 3000 was merely a copy.

26. The correspondence also included, according to the records of Consolid A.G., a letter dated 17 September 1980 to which a post script was subscribed in the following terms: "Please be so kind and forward the diapositives to us, which you have by mistake taken back with you. Thank you." Dr Scherr explained in evidence that this was a reference to slides of the CLU 3000 which he believed Mr Foster had taken with him after a visit to the premises of Consolid A.G. However, there is no direct evidence that Mr Foster did obtain the slides referred to in the post script.

27. The evidence of Mr Frost to the effect that one of the two machines, the CLU 3000 and the Bergood Brick Maker, had been copied from the other, was confirmed by Mr Egel. He had played a part, though a minor one, in the development of the CLU 3000. He said the Bergood Brick Maker was "nearly the same machine". One point of distinction which he noticed was the height to which the pressing plate could be raised. He said that the Bergood Brick Maker differed from the CLU 3000 in permitting the pressing plate to rise higher. But this difference was consistent with copying at the time when Mr Foster saw and photographed the CLU 3000; for, at that time, it permitted the same clearance as is now permitted by the Bergood Brick Maker. The CLU 3000 was modified at a later date for safety reasons, i.e. to prevent a finger or hand becoming caught in the mould.

28. So far as the demeanour of the witnesses is concerned, I thought Dr Scherr, Mrs Scherr and Mr Egel all gave the impression that they were endeavouring to tell the truth, and that their evidence could be relied on. Mr Foster and Mr Fittler made a poor impression on me. I do not base any adverse view about the evidence of Mr Veneziani on anything in his demeanour, but I do not accept his evidence, having regard to the other evidence which I do accept, and having regard to all the probabilities. I would have very great difficulty in accepting what both Mr Veneziani and Mr Fittler told me, that Mr Foster had asked them to give evidence without telling them anything at all about the nature of the case, or making any attempt to ascertain what evidence they would be able to give.

29. I conclude that both the concept and the design, down to many of the quite minute details, of the CLU 3000 were deliberately copied by Mr Foster in the development of the Bergood Brick Maker. It follows that the principal representation relied upon by the applicants was false, and false to the knowledge of Mr Foster. Even if I had not been satisfied that the Bergood Brick Maker was copied from the CLU 3000, the applicants might still have succeeded on the footing that Mr Foster was well aware of the existence of the CLU 3000, having negotiated for the right to produce it in Brazil from 1980 onwards for several years. In those circumstances, he knowingly misrepresented the position when, in 1986, he represented that the Bergood Brick Maker was "totally new both in design and concept". That the representation was deliberately misleading is confirmed (upon the evidence of Mr Farrow, which I accept) by Mr Foster's statement to Mr Farrow at their first meeting that it was "over the last one and a half to two years" he had been working on the invention. Plainly, Mr Foster realized that if Mr Farrow had known the machine was substantially developed, either in Switzerland or in Brazil, some six or seven years earlier, he would not have regarded it as "totally new".

30. I do not think there is any doubt that the applicants were misled by what was represented to them. They did believe the machine embodied a new concept of immense value, particularly for marketing in the third world, and that is why they were prepared to pay the very large sum for which they contracted to purchase the rights Bergood Pty Limited claimed to own. If the true facts had been disclosed, the deeds referred to at the beginning of these reasons would never have been executed. Accordingly, they should be set aside, and in addition there should be an order requiring payment to be made to the applicants of the amount of the loss or damage suffered by them. During the hearing, agreement was reached concerning the amount of the damages sustained, so that it is unnecessary for me to investigate that question. I note here that provision will need to be made in respect of the applicants' claim for an indemnity against any liability to pay damages in a separate proceeding in this court arising out of a sale by Paeson Pty Limited of a Bergood Brick Maker to one Sprague.

31. The applicant seeks relief not only against Bergood Pty Limited, but also against its directors, Mr Foster and Mr Martin. I have already made it plain that Mr Foster was knowingly involved in the misrepresentation and breach of s.52 which found the granting of relief against Bergood Pty Limited. He, together with Bergood Pty Limited, should accordingly be required to pay damages to the applicants.

32. But Mr Martin is in a significantly different position. He cannot be made liable personally simply because he was a director of Bergood Pty Limited. It is necessary that he should be brought within the terms of s.75B of the Trade Practices Act. As was pointed out by Gibbs C.J. in Fencott v. Muller (1983) 152 CLR 570 at 584:

"In the most general words of s.75B, those of
par.(c), the word 'knowingly' significantly
confines the operation of the provision."

I am not prepared to conclude that Mr Martin had knowledge which, in the circumstances of this case, would bring him within the terms of s.75B. It is not shown he had any information that Mr Foster was not the inventor of the Bergood Brick Maker, or that the design and concept were not "totally new". Counsel submitted, however, that Mr Martin must have known the representation concerning the ability of the machine to produce bricks at the rate of 500 per hour from any soil was false. But Mr Martin is not an engineer. He saw what I am prepared to find was a quite inadequate test of the capacity of the machine, but that is not to say that he knew it was an inadequate test, from which an expert would not have been justified in inferring all that was represented. He is an accountant, and his expertise is purely financial. He put into the company $100,000.00 of his own money, and I am satisfied he did so because he believed what Mr Foster, whom he regarded as an expert, told him about the alleged invention. It is noteworthy that when the case was opened, no allegation of fraud was made against Mr Martin. He gave evidence, and was cross-examined. On all the evidence, I am not prepared to find that the applicants have made out a case under s.75B against Mr Martin.

33. I direct the applicants to bring in short minutes of orders in accordance with these reasons. When the short minutes are brought in, I shall hear any submissions as to the orders to be made in respect of costs.