|
|
[Home]
[Databases]
[WorldLII]
[Search]
[Feedback]
Federal Court of Australia |
COURT
IN THE FEDERAL COURT OF AUSTRALIACATCHWORDS
Trade Practices - respondents situated in U.S.A. - representations made by respondents by letter and telephone to applicants in Australia - further representations made orally at meetings in New Zealand - whether representations made fraudulently - whether respondents' conduct misleading or deceptive - whether tort of deceit occurred in Australia where the applicants received and acted on fraudulent misrepresentations - whether the applicants suffered loss or damage by conduct by the respondents in contravention of s.52 of the Trade Practices Act 1974.HEARING
ADELAIDE Counsel for the applicants : Mr T.A. Gray QC with
: Mr A. McNamara and Mr M.F. BlueSolicitor for the applicants : Fisher Jefferies
Counsel for the respondents : Mr R.D. Lawson QC with Mr G Manos
Solicitor for the respondents : Finlaysons
ORDER
There be judgment for the applicants against each respondent for the sum of A$1,695,263.65.The respondents pay the applicants' costs of the proceedings.NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
DECISION
The applicants claim damages and other remedies alleging that they suffered loss as the result of the respondents engaging in conduct which was fraudulent, and misleading and deceptive in contravention of s.52 of the Trade Practices Act 1974 ("the TP Act"). Alternatively claims are made under s.7 of the Misrepresentation Act 1971-1972 (S.A.) and for an account of profits or damages for unjust enrichment.2. The three applicant companies, each incorporated in South Australia (together referred to as "Solomons") at material times carried on business in Australia under the name "Solomons Corporate Carpets" as a commercial carpet wholesaler, retailer and installer. The business was one of the biggest of its kind in Australia.
3. The first respondent ("MSA") is incorporated under the laws of California in the United States of America and carries on business in the USA principally as a commercial carpet retailer and installer. The second respondent ("Mr Barry Schneider") at all material times has been a director, the president, and the chief executive officer of MSA. It is admitted by the defence that he was duly authorised by MSA to act on its behalf in respect of the matters the subject of this action. On the evidence it is clear that he made all major decisions for MSA; he was its mind and soul.
4. On and after 24 March 1986 Solomons lodged purchase orders for axminster
carpet with Feltex Furnishings of New Zealand Limited
("Feltex NZ") for the
supply of carpet to MSA for installation in premises at five locations in the
USA. Feltex NZ carried on business
in New Zealand as a manufacturer and
exporter of carpets. The five locations were office premises for Hogan and
Hartson, attorneys
in Washington, D.C. ("the Hogan and Hartson job"), and four
hotels being constructed for separate owners by Four Seasons Hotels Limited
("Four Seasons"), a company incorporated in Canada and carrying on business in
the U.S.A. and elsewhere as a hotel chain owner and
operator. The four hotel
sites were -
a. Las Colinas Inn and Conference Centre, Dallas, Texas5. It is Solomons' case that they placed these orders in the erroneous belief, engendered by their reliance on false statements made to them by the respondents, that Solomons' national corporate manager, Mr Steve Potter, had quoted prices, and given a formula for calculating prices, for the supply of carpet which MSA had relied upon and adopted as the basis for contracts which MSA had entered into on very low margins with its clients for the supply of carpets to the five locations. The prices and formula which Solomons believed Mr Potter had quoted were far below the cost of purchasing the carpet from Feltex NZ. Solomons invoiced MSA, and were paid, for the carpet at the prices, and according to the formula, which Mr Barry Schneider alleged Mr Potter had given. The difference between the moneys received by Solomons from MSA, and the moneys which Solomons became liable to pay to Feltex NZ for the carpet (including freight charges and duties) was A$895,253.65. Solomons now seek to recover this amount together with compound interest.
("Dallas Hotel"),
b. Newport Beach, Los Angeles, California - sometimes
referred to as the Irvine Hotel ("Newport"),
c. San Jacinto Centre, Austin, Texas ("Austin"),
d. Beverley Hills, Los Angeles, California ("Beverley Hill").
6. At the outset it is convenient to dispose of a point raised by para.1(b) of the defence. The respondents contend that by reason of changes to the corporate structure through which the business of Solomons Corporate Carpets was conducted on 1 March 1986 the applicants do not have the standing to sue for the losses alleged in the statement of claim. I reject this submission. I accept the evidence adduced by the applicants that they have at all times retained the right title and interest to the subject contracts, and that they were the parties which suffered the losses now sought to be recovered.
7. Mr Potter has not given evidence in these proceedings. He was dismissed from his employment with Solomons in about September 1986. He was later charged with larceny as a servant and other offences on the complaint of Solomons. The subject matter of these charges was unrelated to the events which give rise to the present proceedings, but the circumstances surrounding the dismissal of Mr Potter were led to explain why he was not called as a witness. There are also suggestions in the evidence that Mr Potter suffered a nervous breakdown of some kind in 1986, but this is not proved. Solomons' case has been prosecuted on the footing that Solomons do not know what quotations, or formula, Mr Potter gave to MSA. Whatever communications took place between Mr Potter and MSA as to price were oral. Although Solomons challenge that Mr Potter quoted the prices alleged for the quality of carpet later supplied, or quoted the formula alleged, it is accepted by Solomons that Mr Potter at some time gave pricing information, and that in doing so he erred in at least one respect. He said, in effect, that if MSA acquired Feltex carpet through Solomons in Australia, the cost to MSA would be less than the Feltex NZ mill price, as the carpet would attract an export credit, apparently an Australian export credit.
8. Mr Potter commenced to give information about the supply of Feltex axminster carpets to MSA in May or June 1985. It is clear that by October 1985 the accuracy of the information given about export credits was being questioned by the Feltex organisation and by MSA. After correspondence between MSA and Solomons concerning Solomons' pricing, meetings were held in New Zealand on 16 and 17 February 1986 involving Mr Barry Schneider, Mr Potter, Mr Barry Solomon (the chief executive officer of Solomons, and a son of Mr Myer Solomon the executive chairman of the applicant companies) and representatives of the Feltex organisation, including Mr Douglas Tooth who was employed by a Feltex NZ subsidiary company, Feltex Carpets of New Zealand Inc. ("Feltex US"), a corporation incorporated under the laws of California which carried on business in the U.S.A. as an importer, wholesaler and retailer of Feltex carpets. At this time any lingering suggestion that export credits were available to reduce the Feltex NZ mill prices disappeared. It was then that Solomons said that they would supply the carpets to MSA at the prices, or according to the formula, allegedly quoted by Mr Potter even though they would suffer a substantial loss.
9. Fundamental to Solomons' case are allegations that Solomons were induced
to accept purchase orders from MSA by representations
made by MSA and Mr Barry
Schneider. The statement of claim alleges representations on seven separate
occasions. The pleadings allege:
First representations
10. The first representations were contained in a letter from MSA delivered
by courier to Solomons in Adelaide dated 24 January 1986.
It is pleaded that
the letter represented that:
1. MSA had made several quotations to prospective11. In the defence the respondents admit that these representations were made, but say that they were true or alternatively if any of the representations were untrue, the representations were nevertheless honestly and reasonable believed to be true by the respondents.
customers based upon quotations given by Mr Steve
Potter.
2. MSA had entered into several contracts with
customers based upon quotations given by Mr Steve
Potter.
3. The said quotations and contracts were based upon
the following formula ("the formula"):-
Price from Feltex FOB Auckland
Less 22.5% Solomons discount
less 30% export credit
Plus $1.20 p.s.y. seafreight to USA port of entry
Plus applicable US duty.
4. Mr Steve Potter had quoted to MSA a price of US$9.69
FOB USA port of entry for the purposes of the Hogan
and Hartson job.
5. MSA inter alia used the formula in negotiations with
Four Seasons concerning the Dallas Hotel
12. It is pleaded that the second representations were made by Mr Barry
Schneider on behalf of MSW orally to Mr Barry Solomon on
behalf of Solomons on
16 February 1986 in Auckland, New Zealand. The third representations were also
made orally by Mr Barry Schneider
to Mr Barry Solomon in Auckland but on 17
February 1986, and in substance were a repeat of the second representations.
The second
representations are pleaded as follows:
1. MSA had initially entered into negotiations with13. The third representations also allege that Mr Barry Schneider added that if MSA had to pay any more money for the carpet for the five jobs, it would lose money because there was no margin for profit in the jobs due to the competitive nature of the matket.
Four Seasons, after which Feltex US had attempted to
take the business from MSA.
2. MSA had entered into contracts with customers based
upon quotations given to MSA by Mr Steve Potter and
in particular for the Four Seasons Hotels and the
Hogan and Hartson job, and MSA was now obliged to
supply its customers at its quoted prices.
3. The prices quoted by MSA to its customers involved a
very small profit margin above prices quoted by Mr
Steve Potter to MSA.
4. If MSA had to pay any price for carpet higher than
prices quoted by Mr Steve Potter to it for the purpose
of these jobs, MSA would suffer actual losses.
14. Of the above representations, the second is admitted in the defence; the making of the others is denied.
15. On or about 20 March 1986 MSA sent by post to Solomons in Adelaide written purchase orders dated 18 March 1986 for carpets for the Dallas Hotel and for Newport. Solomons accepted these orders at the prices which MSA allege Mr Potter had quoted. On 24 March 1986 Solomons lodged with the Feltex NZ representative stationed in Adelaide purchase orders for corresponding quantities of carpet for delivery to MSA in the USA.
16. On about 1 May 1986 MSA sent by post further purchase orders to Solomons
for additional carpet for Newport, and requested amendments
to the particulars
of the earlier orders. Solomons accepted the further orders and amendments.
Fourth representations
17. It is pleaded that the fourth representations occurred on or about 21 May
1986, and were made when Mr Barry Schneider in the
USA telephoned Mr Barry
Solomon in Adelaide and said:
1. Feltex NZ was threatening to suspend further work18. The first two representations are admitted in the defence, the third is denied.
for MSA and in particular, work for the Austin
Hotel, the Beverley Hills Hotel and the Hogan and
Hartson job, because Solomons had not paid Feltex
for carpet for the Dallas Hotel.
2. MSA was obliged by contract to supply carpet at
contracted prices to Four Seasons for each of the
Hotel jobs and also for the Hogan and Hartson job.
3. MSA had won the contracts on a very fine margin, and
would lose money if it had to pay any higher price
for the required carpet.
19. It is alleged that the fifth representations were made by Mr Barry Schneider in a telephone conversation on 27 May 1986 to Mr Barry Solomon in Adelaide when the substance of the fourth representations was repeated. Again the respondents in the defence deny it was said that MSA won the contracts on a very fine margin and would lose money if it had to pay any higher price for the required carpet.
20. It is pleaded that on the faith of and induced by all of the preceding
representations Solomons undertook to Feltex NZ to pay
all money due for
carpet for the Dallas Hotel.
Sixth and seventh representations
21. On about 7 July 1986 MSA sent by post to Solomons in Adelaide written purchase orders for carpet for Austin. Before Solomons accepted these orders, the sixth representations alleged occurred on about 18 July 1986 and the seventh shortly thereafter.
22. It is alleged that the sixth and seventh representations were made orally
during telephone conversations between Mr Barry Schneider
in the USA and Mr
Myer Solomon in Adelaide. During each telephone conversation it is alleged
that Mr Barry Schneider said:
1. Feltex NZ had threatened not to produce carpet for23. The first of these representations is admitted in the defence; the others are denied.
the purposes of the Hogan and Hartson job due to
failure by Solomons to pay Feltex NZ for the carpet
for the Dallas and Newport Hotels.
2. MSA's client was facing a claim for damages of more
than US$800,000 per month if carpet was not supplied
on time for the Hogan and Hartson job.
3. The Hogan and Hartson job was hardly worth having for
MSA because it was making very little profit from it.
4. MSA were making small margins on all jobs involving
Feltex carpet.
5. If MSA were not supplied with carpet at prices
originally quoted by Mr Steve Potter, it would lose
a lot of money.
24. On about 21 July 1986 MSA sent by post to Solomons in Adelaide written purchase orders for the Hogan and Hartson job, and for further carpet for Austin. On 21 August 1986 and 11 September 1986 MSA sent by post to Solomons in Adelaide written purchase orders for carpet for Beverley Hills. Solomons then lodged purchase orders with the Feltex NZ representative in Adelaide for the supply of the required carpet to MSA in the USA.
25. The particulars and prices of the carpets ordered by MSA from Solomons are set out in the statement of claim, and are admitted. The substantially higher prices at which the corresponding carpet was ordered by Solomons from Feltex NZ are also set out in the statement of claim. Whilst these prices are not admitted by the defence, they are proved by the evidence, with one minor variation in respect of Greenfield carpet for Austin.
26. Solomons allege that when the first, second and third representations were made MSA had not entered into contracts for the Hogan and Hartson job or with Four Seasons in respect of any of the hotels; the margins of profit which MSA then stood to make if the prices which it had quoted to its customers for these jobs were accepted, were not small or insignificant but were unusually high, and such that if MSA had had to pay higher prices than the "Potter prices" for the carpet it would not have suffered trading losses; and that the prices which MSA had given to its customers were not based upon pricing information from Mr Potter.
27. By the defence the respondents plead that those representations which are
admitted were true as written tenders made by MSA to
its clients to supply
Feltex carpet had been orally accepted by the time the representations were
made. The respondents dent that
at any stage Mr Barry Schneider made
representations concerning MSA's profit margin or level of anticipated profit.
Further, the
respondents deny that, as a matter of law, the representations
alleged could have induced Solomons to accept purchase orders at the
Potter
prices as Solomons were prior to 24 January 1986 legally obliged to supply MSA
carpet at those prices. This was so as Solomons,
through the agency of Mr
Potter, knew or ought to have known that MSA would rely upon the pricing
information which Mr Potter gave
when making written tenders for the supply of
Feltex carpets. The defence, by para.14(c)(5) pleads:
By virtue of the said tenders the first respondent (MSA)Beside pleading that each of the clients to whom tenders were made orally accepted those tenders during 1985, it is alleged in the alternative in para.14(c)(7) that:
was legally bound to supply the tendered carpet at the
tendered price to the tenderers should they choose to
accept the tender within a reasonable time of receipt of
same.
PARTICULARS
(a) It is the custom of the United States Commercial
Carpet Sale industry that tender made by a carpet
distributor is irrevocable and that on making the
same the distributor is legally bound to supply the
tendered carpet at the tendered price.
(b) It was understood between the first respondent on
the one hand and (the clients of MSA to whom it made
tender for the five jobs) on the other hand that
the tenders irrevocably and legally committed the
first respondent to supply the tendered carpet at
the tender price.
"...if (which is denied) no legally binding contracts forIt is pleaded that having regard to the custom referred to Solomons were estopped from denying that they were obliged to supply MSA with the carpet at the Potter prices prior to the time when the representations relied on by Solomons were made.
the supply of carpet...were entered into by the first
respondent the first respondent had nevertheless
commercially committed itself to supply the tendered
carpet at the tendered price, and had it declined to
honour that commitment it would have suffered loss and
damage to its reputation as reliable carpet supplier."
28. The respondents contend that Solomons' case is misconceived; it is an inversion of the true position which is that Solomons, through Mr Potter, gave wrong pricing information.
29. The assertion by the respondents that when the first, second, and third representations were made MSA was committed by "contracts" to supply its customers is a central issue. Evidence was led as to tendering practices for the supply of commercial carpet in the USA. All the carpet the subject of these proceedings was axminster carpet. Axminster is manufactured by a slow traditional weaving technique which permits the incorporation of almost unlimited colours and designs. It is particularly suitable for use in public areas of hotels and commercial developments.
30. In jobs of this kind the intending purchaser is likely to be a developer, an owner or owner's agent. The purchaser will seek submissions from competing carpet suppliers to whom it will send a specification or other particulars, including floor plans, giving the scope of the work. The suppliers will "take off" carpet yardage from the plans, and submit tenders or bid proposals for the supply, or supply and installation, of the carpet.
31. If the job is straightforward there is no reason in principle why the purchaser could not enter into a contract with the chosen supplier by simply accepting its bid proposal, but in practice the parties go through the formality of signing either a lump sum contract covering the whole of the work, or a series of purchase orders, which describe precisely the carpet and the price, which constitute the contract. Where the job is complicated, and where custom made carpet is required, as it was in the case of the five jobs in question, the process of selection leading up to contractual commitment with a particular supplier may be protracted. The purchaser, and perhaps its designers and architects, will confer with competing suppliers, discussing such matters as the designs, colours, weaving structures and quality. These are matters which not only bear on suitability and appearance of the carpet, but on price. Samples are commonly obtained from the source of manufacture. Small hand-made samples, "hand trials", may be obtained. Samples of one kind or another, known as "strike-offs" are usually approved by the purchaser, and the strike-offs become a reference point for specifying the carpet to be acquired. Where strike-offs are required, a contract may not be entered into until the strike-off procedures are complete.
32. Suppliers of carpet customarily submit to these discussions and the strike-off procedures as part of the tendering process knowing that in the end the job may be awarded to a competitor. A potential purchaser may obtain strike-offs from several suppliers before contracting with one of them. As the final details of the carpet may not be settled until the strike-off procedure is complete, and as the precise yardage of carpet may vary according to weaving techniques and patterns, only indicative pricing may be possible when bid proposals are first made. The extent to which negotiation is necessary between the purchaser and a supplier to settle on the specification of carpet and cost with sufficient certainty to enable the parties to enter into a binding contract will vary from job to job.
33. Depending on the circumstances, where a purchaser or its representative embarks on the discussion and strike-off procedures with only one supplier, the level of expectation by the supplier that the contract will be awarded to it is likely to grow as the performance of the various requirements of the purchaser are fulfilled. Expectations may not be just one-sided. Time constraints may be important to the purchaser who may develop an expectation that the supplier with whom it is negotiating will not withdraw when the strike-off procedures have reached an advanced stage. In some circumstances a late withdrawal could cause expensive delay in the completion of a project. The inference is that if at a late stage in the strike-off procedures the supplier were to withdraw its bid proposal and walk away from the job, even though no legal consequence might follow, the reputation of the supplier could suffer, at least with the intending purchaser; but this would depend on the circumstances and the reason for withdrawal.
34. The above discussion is in very general terms. Circumstances may vary greatly from one case to another. The evidence however is clear that there is not in the USA commercial carpet supply industry, a custom, as pleaded by the respondents, that tenders made by carpet suppliers are irrevocable and that on making the same the supplier is bound to supply the tendered carpet at the tendered price. In the face of the evidence led by the applicants on this topic, the respondents did not press on with this point.
35. In determining at what stage in the tendering processes the parties enter into a contractual relationship, or otherwise incur rights and obligations enforceable between them, it is material to consider the knowledge which the parties have of the contracting procedures upon which one or other of them insists. This knowledge may come from a course of dealings in the past. In the instant case Four Seasons had very definite contracting procedures which it invariably followed, and these procedures were well known to MSA. Four Seasons would only contract in terms of its printed purchase orders, and until a purchase order was acknowledged in writing by both parties, Four Seasons did not consider itself contractually bound. Four Seasons' purchase orders at relevant times on their face contained the statement: "Purchaser is bound by the terms of this order only if the signed acknowledgment copy is returned to Four Seasons Hotels Limited".
36. Solomons' case has been presented largely on documentary material, much of it gathered from MSA's customers in the USA, and from the Feltex companies. The documents establish that in the case of the Hogan and Hartson job a formal contract was executed between MSA and its customer, and in the case of each of the Four Seasons jobs, numerous purchase orders were submitted by Four Seasons to MSA. The contract, and all the purchase orders were not signed and accepted until after 17 February 1986. To sidestep the apparent significance of this evidence, counsel for the respondents, in outlining the respondents' case at trial, said that in all the dealings between MSA and Solomons, the parties were not speaking of the existence of contracts in the strict legal sense appropriate to the law of the sale of goods, but were speaking in a general commercial sense of the particular jobs being "won" so that for practical commercial reasons MSA was committed to continue dealing with its customers at the prices tendered by it.
37. The term "contracts" is one which appears in relevant letters drafted by Mr Barry Schneider. It is a term he used when making the representations alleged, and admitted by the defence. It is a term used by him in an affidavit sworn and filed in these proceedings in September 1989 (now exhibit A311). A consideration of the circumstances in which these uses of the word were made leaves no real doubt that Mr Barry Schneider used, and intended to use, the word in its strict sense meaning a legally binding and enforceable agreement. The contention at trial that "the parties" were using the word in a different sense is a remarkable shift from the position asserted in the defence and in exhibit A311, but in the end I do not think the outcome of the applicants' claim would be any different even if "contracts" had been understood by the parties to have the other meaning.
38. It is necessary to comment on the witnesses who have given oral evidence. Mr Robin Ashley Hogg and Mr Douglas Tooth were called by Solomons. At material times they were respectively the sales manager and manager of Feltex US stationed in Los Angeles. They were closely involved in the dealings with Four Seasons and MSA on all four hotels. I was impressed by both witnesses who I accept as witnesses of the truth whose recollections of the events were reliable. Mr Hogg took great care in giving his evidence. Where his memory was imperfect he said so. Where he gave positive evidence about events, his evidence was frequently corroborated by documents which had been created at the time. Mr Tooth impressed as a meticulous person, and again much of his evidence was corroborated by contemporaneous documents.
39. Mr Frederick Meloan at material times was the executive in charge of the tenant remodelling division of The George Hyman Construction Company of Maryland, USA ("Hyman"). He was called by Solomons. Hyman was the principal contractor with whom MSA contracted for the supply of carpet for the Hogan and Hartson job. He was a forthright, precise witness. His evidence was to a large extent corroborated by contemporaneous records, and was not subject to challenge by the respondents. Although he had no hesitation in expressing his displeasure with aspects of the conduct of MSA in relation to the Hogan and Hartson job, for reasons which he explained, I do not doubt the accuracy of his evidence on the ground of bias. I accept it.
40. Solomons also called Mr Mark Kurzius and Mr Philip Wexler, both people with considerable experience in the carpet industry in the United States. Mr Kurzius gained his experience through the sales division of a large carpet supplier which is in competition with MSA, and Mr Wexler gained his experience mainly in his capacity as the owner of a carpet mill. They gave evidence as to the customary mark-ups in the U.S.A. recovered by suppliers and selling agents for axminster carpet to the hospitality industry. On that topic their evidence was consistent with that of Mr Hogg and Mr Tooth, and I accept it. I also accept their evidence that there was no custom in the industry of the kind alleged in the defence. Mr Kurzius and Mr Wexler gave evidence about the general reputation of MSA in the United States carpet market, a topic opened up by the defence. In this respect their evidence differs from that given by the respondents' witness Mr Patrick Joseph Gilligan. On that topic I accept that each witness was honestly relaying information which they believed to be correct. MSA conducted a large business, and it is not unlikely that across the broad spectrum of consumers of carpets different people have formed different views. It seems that MSA had, in some quarters at least, a reputation for putting in bids that did not comply with the specifications, and then seeking to have the specifications changed, so as to supply another and cheaper line of carpet. This practice, sometimes referred to as "value engineering", tended to annoy architects and designers, as it encouraged owners to change the specifications. On the other hand a like practice was encouraged by other sections of the market which included property developers anxious to obtain a result at the cheapest price. That section of the market held a different view about MSA from the architects and designers. In any event, the issue of the reputation of MSA is quite peripheral to the main issues in the case.
41. Mr Michael Dunn at the relevant time was the Feltex NZ representative stationed in Adelaide. He was called by Solomons. I accept him as a witness of the truth.
42. I also accept each of Mr Barry Solomon, Mr Myer Solomon, and Mr Clive Budlender, three executives of Solomons, as witnesses of the truth. Mr Barry Solomon and Mr Budlender gave their evidence in a frank, straight forward way and nothing arose from their cross-examination which throws doubt on their reliability.
43. It was suggested to Mr Myer Solomon in his cross-examination that at a meeting in November 1986 in San Francisco he put forward a proposal to Mr Barry Schneider and his father Mr Monroe Schneider, to alleviate Solomons' loss which would have involved MSA in a tax fraud. It is far from clear what proposal was made by Mr Myer Solomon on that occasion and I am not satisifed that whatever he proposed necessarily involved dishonesty. I have however carefully considered his evidence in light of this attack and have concluded that I should accept it. It is clear from documents emanating from Feltex NZ that at a meeting between him and Mr Peter Stanes, the senior executive of that company, in August 1986 that Mr Myer Solomon then frankly disclosed information which I do not think he would have disclosed had he been disposed to be untruthful. The conduct of Mr Barry Solomon and Mr Myer Solomon in agreeing to stand behind the Potter prices to avoid loss to MSA was that of honourable people and their evidence leaves me satisfied that there is no substance in the attack made by the respondents on Mr Myer Solomon's credit. In any event the crucial issues in the case do not turn on his oral evidence.
44. The remaining witnesses in Solomons' case were the accountants Mr Michael Mount and Ms Hilary Orr, Mr Peter John West who gave only formal evidence which was not in any respect challenged, and Mr Gregory Spivey who was the construction manager for the owner of the Washington D.C. project which contained the Hogan and Hartson office complex, Square 290 Limited Partnership ("Square 290"). The credit of these witnesses was not put in issue and I accept their evidence.
45. Although I have expressed a general acceptance of the oral evidence of the witnesses called in support of the applicants' case, counsel for the applicants, at the outset observed that the essential issues would be resolved in the applicants' favour upon the documentary evidence. On many questions this is so. Further, the documents provide a useful source of contemporaneously recorded information against which to check the reliability of the evidence of the witnesses. Whilst the documents largely make out to the applicants' case, they also serve to destroy the credit of Mr Barry Schneider who was the essential witness for the respondents.
46. Before expressing my assessment of the evidence of Mr Barry Schneider I
refer briefly to the standard of proof which rests upon
a party which alleges
fraud. The ordinary rule in civil proceedings is that the plaintiff must prove
the case to the satisfaction
of the court on the balance of probabilities.
Nevertheless the degree of satisfaction required to tilt the scales in favour
of the
plaintiff may vary according to the gravity of the fact to be proved.
The reason for this is expressed in the well known passage
from the judgment
of Dixon J. (as he then was) in Briginshaw v. Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at
362 where he said:
"But reasonable satisfaction is not a state of mind thatThe observations of Denning L.J. (as he then was) in Bater v. Bater (1951) P 35 at 37 are directly relevant in the instant case. His Lordship said:
is attained or established independently of the nature
and consequence of the fact or facts to be proved. The
seriousness of an allegation made, the inherent
unlikelihood of an occurrence of a given description, or
the gravity of the consequences flowing from a particular
finding are considerations which must affect the answer
to the question whether the issue has been proved to the
reasonable satisfaction of the tribunal."
"...in civil cases, the case may be proved by a47. Not only does Solomons' case assert that MSA and Mr Barry Schneider were guilty of fraud in their dealings with Solomons, it alleges that they were guilty of fraudulent conduct in their dealings with Hyman and with Four Seasons. An allegation of fraudulent dealing by a large commerical enterprise, any by its chief executive officer, are grave matters upon which a tribunal should be satisfied to a high degree of probability before finding the allegations to be made good. For reasons which follow I am constrained by the evidence to find, notwithstanding the seriousness of the allegations, that the fraudulent conduct alleged has been clearly proved.
preponderance of probability, but there may be degrees of
probability within that standard. The degree depends on
the subject matter. A civil court, when considering a
charge of fraud, will naturally require for itself a
higher degree of probability than that which it would
require when asking if negligence is established. It
does not adopt so high a degree as a criminal court, even
when it is considering a charge of a criminal nature; but
still it does require a degree of probability which is
commensurate with the occasion."
48. Mr Barry Schneider is an inveterate letter writer. His correspondence in this case is notable for the disclosure of double dealing to which he resorted in the course of the transactions before the Court. A list of examples is contained in the written submissions of the applicants, pp 82-86. His letters demonstrate that he is a man prepared to manipulate the truth to suit the financial interests of MSA. In the course of recounting the five jobs further reference will be made to these matters and to others which show that Mr Barry Schneider is a witness without credit. I am unable to place any reliance on his evidence except to the extent that it is borne out by the documents or the evidence of other witnesses. He impressed as an intelligent, clever man with a remarkable memory for documents and detail. Although my rejection of his credit is not dependent upon my subjective impression of him in the witness box, that impression is that his oral evidence was carefully tailored to fit that of the other witnesses and documents in a way that would cast the most favourable light on his cause.
49. Mr Monroe Schneider did not play a central role. He was called to give evidence on matters of peripheral importance. He demonstrated himself to be a partisan witness keen to support his son. His evidence was demonstrated to be erroneous reconstruction in one significant respect. I am unable to accept his evidence as reliable. Of the other witnesses called for the respondents' case I have already referred to Mr Patrick Joseph Gilligan. Mr Lee Adair, the accountant for MSA, was helpful in that he explained that the apparently strange and simple accounting records of MSA at the relevant time were due to the failure of a recently installed sophisticated computer system. I accept his explanation in this respect. Insofar as he had an input to the accounting treatment of the five transactions he was merely carrying out the directions of Mr Barry Schneider. Mr James Cardy was the purchasing co-ordinator employed by Four Seasons with responsibility for the four Four Seasons jobs. Insofar as his evidence related to his dealings with MSA and Feltex US in connection with the four jobs I accept him as a witness who was endeavouring honestly to recount what he recollected, although his recollection independent of contemporaneous correspondence was in many respects imperfect. For that reason to the extent that there is conflict between them I prefer the evidence of Messrs Hogg and Tooth. His evidence as to the attitude which he would have adopted towards MSA had the company sought to withdraw from the Four Seasons jobs in January or February 1986 I found to be unrealistic.
50. I turn now to discuss the transactions which culminated in the orders for carpet.
51. Messrs Barry Schneider and Barry Solomon first met whilst boarding a flight from Los Angeles to Florida to attend a Du Pont Corporation conference in May 1985. They sat together on the flight and discussed the nature of their own businesses. Mr Potter also attended the conference, but sat elsewhere during the flight. Mr Barry Schneider says he had a lengthy discussion with Mr Potter in Florida when Mr Potter solicited MSA's interest in purchasing Feltex axminster carpet through Solomons. He alleges that Mr Potter informed him that Solomons could supply this carpet to MSA at a price less than MSA would pay to competitors because of leverage Solomons could exert on Feltex and because of export credits. They discussed the prospect of their two companies doing business. Mr Barry Schneider says he also had discussions in Florida with Mr Barry Solomon in whose presence Mr Potter repeated what he had earlier said so as to "consummate" the discussion. Mr Barry Solomon denies there was any such discussion involving him, and I find that there was not. It may be that Mr Potter and Mr Barry Schneider discussed Feltex carpets, but based on subsequent events I find that neither prices nor a formula for calculating a price were settled between them in Florida.
52. On his return to Australia, on 22 May 1985 Mr Barry Solomon posted to MSA a copy of the Solomons Operations Manual used by its franchises, and a covering letter inviting Mr Barry Schneider to contact Solomons if in the future he received any inquiry for large jobs in axminster or wilton carpets.
53. In June Mr Barry Schneider telephoned Mr Barry Solomon in Adelaide and requested Solomons to give prices for axminster carpets for two large jobs in the U.S.A. on which he intended to quote, identified as the Intercontinental Hotel, Washington D.C. and The Four Seasons Dallas Hotel. Mr Barry Solomon passed this inquiry to Mr Potter. The evidence of Mr Dunn establishes that the inquiry was passed on to him as the Feltex N.Z. representative in Adelaide by Solomons, and in turn he referred the request to his head office. Later, prices were given direct by Mr Dunn's superior to Mr Potter. Mr Potter then spoke by telephone with Mr Barry Schneider.
54. On 21 June 1985 Mr Barry Schneider wrote to Mr Potter. The letter is
exhibit A11. Amongst other things he said:
"This letter will confirm Axminster 80/20 wool/nylonThe letter went on to set out terms about payment and freight costs, and made a request for samples. It then continued:
pricing, in U.S. dollars, F.O.B Port of Los Angeles,
Houston or New York, guaranteed for orders placed through
November, 1985.
8 row, 189 pitch 12' or 15' width $9.69 per square yard
8 row, 189 pitch 27" width $9.82 per square yard
Each additional row maximum increase .45 per square yard"
"New PricingFeltex NZ internal memoranda, and notes found in Mr Potter's diary, establish as a matter of probability that in response to the request to Feltex NZ for prices, Mr Potter was given prices for two qualities of axminster carpet, and in each case prices for 12 foot and 27 inch widths. As was the practice of Feltex NZ, the prices were per metre quoted F.O.B. New Zealand in New Zealand dollars. Mr Potter sought to convert the prices into amounts per square yard, then to calculate a price, including freight, in U.S. dollars F.O.B. port of entry U.S.A. It is not possible to understand how he arrived at the results which he did but his notes show that for an axminster carpet known as Riccarton his prices were for 12' wide, US$9.69 s.yd. and for 27" wide US$9.82 s.yd. For a heavier carpet known as Lynfield his prices were for 12' wide US$11.15 s.yd., and for 27" wide US$11.08 s.yd.
I have a large office job in tufted nylon that I would
like to present the option of an axminster. It is
approximately 20,000 s.y. and will need to ship in the
next several months. Please give me a price based on a
solid color, 9 row, 189 pitch approx. .290" pile height
80/20 wool/nylon. Under my sample 'requests' I have
asked for a quality representation to use in presentation
to my client."
55. Riccarton is a very light weight axminster described as a "61/3 row" carpet. It would be suitable for bedroom use in a hotel, but not for use in heavy traffic areas. Lynfield is a heavier 8 row axminster, but not as heavy as Four Seasons specified for use in corridors and public areas.
56. Mr Barry Schneider in his evidence said that his request to Solomons in relation to the Intercontinental Hotel was for carpet for bedroom use, and it appears that the $9.69 s.yd. price was calculated by Mr Potter for that quality carpet.
57. It is notable that Mr Barry Schneider's letter of 21 June 1985 seeks to confirm US$9.69 as the price for an 8 row carpet whereas in fact it was the price calculated for the lighter carpet. It will also be noted that the difference between the prices for the two qualities of 12' wide carpet as calculated by Mr Potter in his notes is $1.46 - making it difficult to understand how the cost of .45c per square yard for each additional row was arrived at (a price which appears extraordinarily low by reference to the other pricing evidence).
58. Whilst the calculations of Mr Potter which lead to his final prices cannot now be understood, the result makes it clear that at some point he has allowed a significant discount, but not as great a discount as the "Potter formula" would give. Whether the result reflects error in calculation, or error of some other kind, there is no reason to suspect that the prices as calculated were not relayed to Mr Barry Schneider, and the terms of his letter confirm that at least two of them were. Counsel for the applicants argue that it should be held that exhibit A11 contains a deliberate misrecording of the prices given. In light of subsequent conduct of Mr Barry Schneider, there is some force in the submission, but it is not necessary for the resolution of the case to make such a finding. Nor is it necessary to make a finding that the price given by Mr Potter of $9.69 would have been understood by Mr Barry Schneider to be the price for the lightweight bedroom carpet which he requested. In my opinion the case is to be resolved in the applicants' favour even on the footing that the price of $9.69 was the price conveyed by Mr Potter to Mr Barry Schneider for 8 row carpet for the Dallas Hotel.
59. By letter dated 24 June 1985 MSA wrote to Four Seasons under the heading
of the Dallas Hotel and the Newport Hotel saying, in
part:
"Please accept the following pricing, F.O.B., Port of LosThis letter is relied on by the respondents as the "quotation" which bound them to supply Four Seasons for the Dallas Hotel job. I am satisfied that, without more, the letter of 24 June 1985 cannot be described as a firm quotation. It can only be an indicative or "generic" price. Prices will vary according to characteristics which include weight, colour, and weaving requirements which depend on patterns and repeat patterns which must be fitted into floor plans. In May and June 1985 Four Seasons requested and received bid proposals from several carpet suppliers for the Dallas Hotel corridors and public areas. A bid proposal was not sought from MSA. Feltex US made a bid, and did so in terms of a price per square yard for 8 row corridor carpet and another price for 10 row public area carpet. However Feltex US had much more information about the requirements of the job, gained partly by inspection of the site and partly in conference with the designers. The prices quoted were the product of detailed calculations based on an analysis of floor plans and weaving structures, and reflected weighted average prices for the many different lengths of carpet which the job required. MSA had insufficient information to enable weighted average prices for corridors and public areas to be calculated. Mr Barry Schneider, shortly before sending his letter of 24 June 1985, telephoned Mr Cardy at Four Seasons saying he was interested in providing carpet for the Hotel. Mr Cardy's response was "Fine send us some pricing", but the specification for carpets was not discussed.
Angeles and Port of Houston for 80/20 wool/nylon
axminster carpeting. Terms are net cash 30 days from
receipt of invoice.
8 row, 189 pitch 9' or 12' width $13.83/s.y.
10 row, 189 pitch 9' or 12' width $17.03/s.y.
27" width add .50/s.y.
60. For the same reasons the prices, whatever they were, obtained by Mr Barry Schneider from Mr Potter for the Dallas Hotel can only be regarded as generic prices.
61. There is a striking coincidence in time between the date of exhibit A11 and the letter to Four Seasons which supports an inference of relationship between the prices obtained from Mr Potter and the generic prices given to Four Seasons. However Mr Barry Schneider was unable to suggest any calculation which would lead from the exhibit A11 prices to the prices given to Four Seasons. The mark up is considerable, particularly in relation to the 10 row carpet. I accept the evidence of the applicants' witnesses that in 1985 competition in the U.S.A. axminster market was strong; that mark up margins on axminster carpets ordinarily varied between 5 and 15%; and that on large jobs mark ups were usually towards the low end of the range. Here the mark ups were approximately 42% and 60%. Mr Barry Schneider explained that the prices received from Mr Potter were starting point, but the prices put forward to Four Seasons were fixed having regard to market forces: they were his estimates of the highest prices he could charge in the market whilst still maintaining the edge on his competitors.
62. Unbeknown to MSA, by 24 June 1985 Four Seasons and Feltex US had already reached an advanced stage in their discussions, and at about the time MSA gave its generic prices Feltex US was orally informed by Four Seasons that the Dallas Hotel job would be awarded to it. Purchase orders for substantially all the relevant carpets were issued by Four Seasons to Feltex US in August 1985 at weighted average prices of US$19.60 s.yd for 8 row "Greenfield" and US$25.75 s.yd for 10 row "Burnside".
63. In June 1985 Hyman was seeking bid proposals from selected carpet contractors in Washington D.C. to carpet the offices of Hogan and Hartson. MSA was not one of the selected contractors, but on other projects had performed work for the proprietors of Square 290. Mr Barry Schneider contacted Mr Spivey (the proprietor's construction manager) and expressed interest in submitting a bid. Mr Spivey suggested MSA as an additional carpet supplier to Mr Meloan at Hyman who later received bid proposals to supply and install carpet submitted by MSA to whom the relevant specifications had been provided in the meantime. The specifications required axminster 9 row, 45 oz pile weight, from nominated manufacturers who did not include Feltex NZ. MSA made a conforming bid, and additionally put forward an alternative non-conforming bid which assumed Feltex axminster would be used. MSA's bid proposal was first submitted on 9 July 1985. The specifications for the Hogan and Hartson carpet match the carpet described in exhibit A11 under the heading "New Pricing".
64. MSA's initial bid was later amended to allow for additional carpet and variations required by Addendum Nod.4 to the specifications issued on 23 July 1985. Although MSA made amendments to the initial bid price on 1 August and 21 August 1985, the amendments were unrelated to the unit costs for carpet. Each bid assumed the same unit costs, but as the bids disclosed only the price for installed carpet, the component charged for the carpet alone is not apparent in the bids. However by letter dated 26 August 1985 MSA advised Hyman of the unit prices applicable to "overages". The unit prices for overages would normally indicate the prices charged by the contractor for each type and quality of carpet. In the present case I am satisfied that the unit costs quoted for overages do represent the unit charge out prices allowed for the Feltex carpet, or very close to it, when MSA constructed the non-conforming bid proposal.
65. The installed carpet prices disclosed in the bid proposals by MSA were:
"Carpet Manufacturers as specifiedAlternative quote (not specified manufacturer)
Carpet:
C-1 over 40 oz. pad $29.85 s/yd
C-1A over 40 oz. pad 27.60 s/yd
C-2 over 40 oz. pad 29.85 s/yd
C-3 over 40 oz. pad 34.85 s/yd
C-4 (Glue direct) 18.75 s/yd
C-5 over 40 oz. pad 29.85 s/yd
C-6 over 40 oz. pad 34.85 s/yd
...
Carpet as specified:Only the carpets C-1, C-1A, C-2 and C-5 required axminster. It will be noted that the difference in installed cost between the two quotes for axminster is $2.10 per square yard. The unit cost quoted for Feltex overages (which excludes the "pad" or underlay) was $23.85 per square yard. By way of comparison, the bid proposals received by Hyman from other suppliers after revision for Addendum Nod.4. were:
C-1 $27.75 s/yd
C-1A 25.50 s/yd
C-2 27.75 s/yd
C-3 32.75 s/yd
C-4 18.75 s/yd
C-5 27.75 s/yd
C-6 32.75 s/yd
Conforming bids Lump SumIt will be noted that the MSA non-conforming proposal was not the cheapest, and was very close to the conforming bid made by the contractor South Eastern Flooring.
South Eastern Flooring $673,500
MSA 712,264
Ginns 665,179
Non Conforming - Feltex
MSA 674,967
66. In late August 1985 Hyman met with each of the contractors who had made bid proposals. MSA advocated its alternative bid. Samples of Feltex carpet were obtained by MSA from Feltex US for demonstration during these discussions. Mr Hogg was aware that the samples were for a Washington D.C. job, but he was not informed that MSA was communicating with Solomons regarding the possible supply of Feltex carpet into the U.S.A. The evidence does not disclose what quality of carpet samples were supplied by Feltex US, but it may be inferred from later events that it was not carpet of the quality finally approved by Hyman as complying with the weight and row requirement of the specifications. I am satisfied on the evidence that the samples used in discussions with Hyman prior to 26 August 1985 did not come from Mr Potter or Mr Dunn.
67. On 26 August 1985 Mr Barry Schneider telephoned Mr Potter in Adelaide. Mr Dunn was in Mr Potter's room at the time. Mr Barry Schneider gave details of a carpet quality he required for the Washington job (later identified to Mr Dunn as the Hogan and Hartson job) and confirmed the specifications by letter of that date. On 27 August 1985 Mr Dunn posted a sample of Nandi quality carpet to MSA with a covering letter which pointed out that Nandi was a 44 oz., not 45 oz. carpet which the specification called for. Mr Dunn had apparently explained orally to Mr Barry Schneider that Nandi carpet should meet the specification nonetheless. This later proved to be the case. In early September Mr Dunn received from MSA samples prepared by the designers of the Washington D.C. project, and drawings of patterns for the carpet design which was unusual. These he sent through to New Zealand to the mill for preparation of strike-offs.
68. On 6 September 1985 Hyman submitted a bid proposal to Square 290 for the fitting out of the Hogan and Hartson offices (a proposal for works exceeding US$10m). The breakdown of cost incorporated the MSA alternative bid proposal dated 21 August 1985 for the carpets. The bid proposal, on acceptance by Square 290, fixed the contract price between Square 290 and Hyman. The acceptance of the Hyman proposal created rights and obligations between Hyman and Square 290, but created none as between Hyman and the various sub-contractors whose proposals had been used to compile Hyman's bid proposal. Once the proprietor accepted the bid proposal from the head contractor, the normal industry practice, followed by Hyman, was for the head contractor to contact the sub-contractors whose bids had been used to compile the proposal to the proprietor, and to execute contracts with each of them as quickly as possible either at the sub-contractor's proposal price, or at a better price if one could be negotiated. In the present case this was done with other sub-contractors but was not done with MSA for reasons which Mr Meloan explained. Although Hyman's bid proposal to Square 290 stated that the bid was based on using Feltex carpet, the specifications still required the approval of Square 290 and Hogan and Hartson, and this would be forthcoming only when those parties and the designers were satisfied that the substitution would not affect quality.
69. Mr Hogg on behalf of Feltex US became involved in discussions about the quality and characteristics of Feltex carpet which were taking place between MSA, the designers, Hyman and the other interested parties. Mr Hogg describes how in October and November 1985 he was assisting in the process of "educating" the designers about the difference between the carpet specified, and Feltex carpet which was manufactured by a different technique. Difficulty was also encountered in obtaining designers' approval for patterns and colours, which differed from those originally described by Mr Barry Schneider to Mr Dunn on 26 August 1985. Approval for the amendment of the specifications to allow Feltex carpet was not issued by Square 290 until 7 March 1986.
70. Until the amendment to the specifications occurred Hyman could not contract with MSA for Feltex carpet. More importantly until well into January 1986 the quality and characteristics of the Feltex carpet to be supplied had not been settled with sufficient particularity to make it possible to contract.
71. The respondents however argue that MSA was committed legally (and if not legally, in a commercial sense) by about 6 September 1985 when Hyman informed MSA that the job would be awarded to it. In my view whatever oral advice was then given to MSA created no legally enforceable rights or obligations in MSA, and, as will later appear, it is clear that MSA did not believe that it was committed to the price contained in its bid proposal.
72. The respondents contend that the bid proposal for the alternative carpet was based on the Potter price of US$9.69 per square yard. I reject this. Even taking the most favourable view of the case for the respondents, it is clear that the $9.69 price was for carpet of a different quality for use in the Dallas Hotel. $9.69 was not a price given for the Hogan and Hartson job, or for similar carpet. The terms of exhibit A11 make this clear; and the evidence of Mr Dunn and the inference from the correspondence of 26 August 1985 is that no price for Hogan and Hartson carpet had been given by Mr Potter before that date. Mr Barry Schneider gave evidence that shortly after he despatched exhibit A11 he had a telephone conversation with Mr Potter when Mr Potter said that the $9.69 price would also apply to carpet of the kind described in exhibit A11 under the heading "New Pricing". The quality and weights of the two carpets are quite different. An 8 row carpet as described in exhibit A11 would be unlikely to exceed 32 oz whereas the Hogan and Hartson carpet was to be 9 row 45 oz carpet. Whatever errors Mr Potter may have made to that point in time it is inconceivable that he would have equated the two carpets, and equally inconceivable that Mr Barry Schneider could have genuinely believed that the price. for the two would be the same.
73. In support of the respondents' case that such a telephone conversation occurred, they asserted in their Particulars that Mr Barry Schneider had conversations with Mr Potter on occasions in June and July 1985, and discovered MSA's telephone accounts to establish this. The telephone accounts are in precise detail recording the destination of every call. In transpired that the accounts discovered for the period May to August related to 1986. The importance of producing accounts for the corresponding period in 1985 was made plain, and the opportunity existed for this to happen. It did not happen. No telephone accounts were produced by the respondents. In these circumstances I act with confidence on the inferences from other evidence and find no such telephone conversations took place. I find that at no time before 21 August 1985 (when the final amended bid proposal for the Hogan and Hartson was made by MSA) did Mr Potter give a price for the Hogan and Hartson job. Mr Barry Schneider's evidence to the contrary is fabrication.
74. The respondents also rely on a letter dated 17 September 1985 from Mr
Barry Schneider to Mr Potter, and internal office documents
discovered by
Solomons, as further evidence that Mr Potter quoted a price of US$9.69 or
thereabouts for the Hogan and Hartson carpet.
The letter of 17 September 1985
relevantly reads:
"Confirming our telephone conversation of this date, we75. In a later letter dated 25 September 1985 to Mr Potter, Mr Barry Schneider said: "I have recieved my contract and can authorise manufacture of this order once we get sample approval".
are receiving a deposit on the Washington, D.C. project.
Our controller advises me that to recognize that money as
of our 9/30/85 fiscal year end, we will need a supplier
invoice. Of course it will be a 'dummy' invoice for our
internal purposes only. I will expect normal billing
procedures (net 90 days) to be generated once actual
production is shipped.
There will be approximately 16,400 s.y. Perhaps you
could send the 'dummy invoice' for 8,200 s.y. x the unit
price per square yard, U.S. dollars. Based on our last
conversation, I expect that price to be somewhere around
$9.25/s.y.Us F.O.B Washington, D.C., U.S.A. Indicate a
job sidemark of Hogan and Hartson and freight destination
of Washington, D.C.
Thank you for responding to this rather unusual request.
The invoice needs to be dated prior to 9/30/85. What we
must do to keep our accountants happy]"
76. MSA did not receive a contract for the Hogan and Hartson carpet in September 1985. The evidence leaves unclear what the motives of Mr Barry Schneider were in relation to the dummy invoice, especially as the terms of the MSA bid proposal provided for a "25% deposit on carpet". The applicants argue that the purpose was to get Solomons, under a guise, to commit itself to a price around US$9.25. That is one possible explanation but other less sinister explanations are possible. Mr Barry Schneider says that in the course of the telephone conversation he alleges occurred shortly after exhibit A11 was posted, Mr Potter also said that it might be possible to negotiate a better price than US$9.69 depending on the loom. I have already found this conversation did not take place. Then, after 26 August 1985, Mr Barry Schneider says that in another telephone conversation Mr Potter quoted US$9.25 F.O.B. point of entry into the U.S.A. The letter of 17 September 1985 suggests that a price of $9.25 was discussed with Mr Potter about this time in the context of a dummy invoice but I find that at no time did Mr Potter quote $9.25 as a firm price. In later dealings with Solomons a price of US$9.25 was never mentioned. The price asserted by Mr Barry Schneider was always $9.69.
77. Amongst papers discovered in Mr Potter's files by Solomons was a "dummy invoice" on Solomons stationery for the Hogan and Hartson job dated 21 September 1985 addressed to MSA "To supply only of 8,200 sq. yards of Feltex Carpet @ 9.25 per sq. yard (U.S.) FOB Washington D.C., USA. Total value this invoice $75,850 (U.S.)". However it is clear that this document was never forwarded to MSA. On 30 September 1985 Mr Potter also prepared on Solomons stationery an order to Feltex NZ for "16,500 sq. yds (to be confirmed) ... Nandi quality $38.67 N.Z. FOB N.Z. Port" and recorded on an internal worksheet particulars of a contract to supply 16,500 sq. yards of Nandi quality carpet for the Hogan and Hartson project at $152,625. This figure is the product of 16,500 x $9.25, but the worksheet does not disclose that the currency is U.S. dollars. The worksheet also records the estimated cost to Solomons of this carpet as $112,860. The document itself implies that both figures are in Australian currency. The enormous difference between the provisional purchase order addressed to Feltex NZ, and the dummy invoice price is inexplicable.
78. The purchase order addressed to Feltex NZ was not intended to be a firm order. Mr Dunn says it was offered to him on about 30 September 1985 by Mr Potter to reserve loom space at the mill so that later, if and when the job was confirmed, the carpet could be manufactured without delay. Mr Dunn refused to accept the purchase order as it was not a firm order, but he offered to advise the mill anyway of the possible order. Mr Dunn had earlier by letter dated 16 September 1985 given a price for Nandi quality carpet to Solomons of NZ$38.67 F.O.B. New Zealand port.
79. In the absence of credible evidence as to what was said between Mr Barry Schneider and Mr Potter in the conversation which preceded Mr Barry Schneider's letter of 17 September 1985 it is not possible to make any finding about the significance of the reference in that letter to $9.25, or to that price on the dummy invoice prepared by Mr Potter. It may be that Mr Barry Schneider persuaded Mr Potter to use that figure on the assurance that the dummy invoice was just for MSA's internal purposes. He may have given a reason for wanting a fictional price of $9.25; that would depend on what purpose he had for making "dummy" entries in the MSA accounts immediately before the close of MSA's fiscal year. It is significant that Mr Potter apparently thought better of sending the dummy invoice to MSA, and did not do so.
80. The allegations that Mr Potter quoted US$9.25 or US$9.69 receive no support from a "dummy invoice" which MSA processed through its accounts on 16 October 1985 and retained in its files addressed to Hymans. That invoice read "To supply carpet 8200s.y. Axminster @ 23.85 195510.00". The unit price is that earlier given for overages. An accounting notation on the invoice (and other account records also) indicates that against the notional revenue of US$195570 was offset a corresponding cost for the carpet of US$114800. This notional cost assigns a unit cost to MSA for the carpet of US$14.00. Even allowing for duty and freight which MSA would have expected to pay on carpet once landed F.O.B. USA port of entry (see exhibit 248, schedule 5), the unit cost allowed exceeds US$12 s.yd.
81. In any event, it is clear from the evidence that the US$9.69 price, was not given by Mr Potter for Nandi carpet, or for the Hogan and Hartson job, at any time before MSA made its bid proposals to Hyman. Those bid proposals were made according to Mr Barry Schneider's assessment of the market prices for axminster in the U.S. at the time. He may have thought that because of something said by Mr Potter about export credits, or because of the generic pricing received for carpets for the Intercontinental and Dallas Hotels that he would be able to obtain Feltex carpets at a favourable price but he had no price at the time from Solomons for carpet of the kind specified for the Hogan and Hartson job. If it transpired that Feltex carpet could not be obtained at a favourable price he could have reverted to supplying carpet as specified, with little downside risk to MSA as the amounts of the bid proposals by other contractors indicate. It is apparent from MSA's amended bid proposal dated 21 August 1985 that MSA quoted non-Feltex carpet at only $37,300 more than Feltex carpet. Even on Mr Barry Schneider's own evidence he still stood to make a significant profit if he had to use the specified manufacturer's carpet at the non-conforming bid price (see exhibit R69).
82. In September 1985 Mr Barry Schneider spoke with Mr Cardy of Four Seasons
about the Dallas Hotel. This may have been in conjunction
with a bid MSA was
making for the installation of the corridor and public area carpets. He was
informed that the supply contract
for these areas had been given to Feltex US.
He expressed surprise saying that MSA had also been quoting Feltex carpet, and
said
he would get back to Four Seasons as there was some ambiguity as to
whether MSA or Feltex US should have submitted a price on the
project. This
conversation was followed up by Mr Barry Schneider writing to Four Seasons on
16 September 1985. In part the letter
read:
"As previously discussed, I have talked with Feltex aboutCopies of this letter were forwarded both to Mr Potter and to Mr Dunn in Adelaide under cover of a letter which read:
our both quoting on your project. They were aware at the
mill about our working with you as we 'registrared' the
job. However, that was not passed on to the American
group, hence their direct quotation to the Four Seasons.
Feltex is pleased to accept the order via MSA, so, if
indeed our pricing is competitive, I ask that you send a
confirming purchase order to my attention.
I admit that it is unusual for a contractor to be able to
quote for less than 'mill direct', however, as I have
explained, working via a company in Australia has
provided added benefit. Indeed, consolidating the
purchase and installation through MSA will provide sole
source accountability and should serve to simplify matters.
My pricing letter of June 24th referencing both the Inn
and Conference Center and the Irvine hotel remains in
effect. Since that letter, I have found that there is an
8.8% import duty on axminster carpet. I would like to
revise pricing up to include that duty, however, if you
insist otherwise, will stand behind the original pricing."
"I have 'blind copied' you on the attached letter to the83. The final paragraph is inconsistent with the assertion by Mr Barry Schneider that the Potter formula had been given to him at an earlier date. Other statements made in these letters were not true. The letters provide an example of the double dealing which is a feature of Mr Barry Schneider's conduct in these transactions. MSA had not "registrared" the Dallas Hotel job with the Feltex NZ mill. Mr Barry Schneider had not spoken with either Feltex US or Feltex NZ about MSA and Feltex both quoting on the project. Feltex had not said it would be pleased to accept the order via MSA - in fact the Feltex organisation was unaware that MSA had made a bid proposal. In his evidence Mr Barry Schneider offered as the explanation that he had spoken with Mr Dunn by telephone in Adelaide on 26 August 1985. The explanation fails dismally. Mr Barry Schneider knew that Four Seasons was seeking bid proposals for the supply of public area carpet in June 1985 and that would have been the time communication with Feltex NZ would have been necessary. Further, I accept the evidence of Mr Dunn that the conversation on 26 August 1985 related to Nandi quality carpet for Hogan and Hartson ans was unrelated to the Dallas Hotel. In that conversation, or in another shortly afterwards, Mr Dunn had been requested to contact Mr Hogg in the U.S.A. and to ask him to contact MSA, but in relation to the Hogan and Hartson job. Mr Hogg did make several attempts to contact Mr Barry Schneider as requested, but he did not return Mr Hogg's telephone messages. Mr Barry Schneider conceded in evidence that at this time he was avoiding Mr Hogg. When Mr Dunn read Mr Barry Schneider's letter of 16 September 1985 he recognised the Four Season name as that of an established client of Feltex US. This was the first indication he received that it had been proposed that Solomons supply Feltex carpe for the Dallas Hotel. He immediately forwarded the correspondence to his superiors in New Zealand.
Four Seasons. Mike Dunn's copy is also enclosed since I
did not know which address was applicable. I waited
three extra days prior to writing the Four Seasons
letter, expecting Robin Hogue (sic) to contact me as per
Mr. Dunn's assurances. As of this date, I have yet to
receive any communication from Feltex, U.S.
I trust you will be able to alert Feltex of this
situation. It is important that they precude (sic)
Feltex, U.S. from creating any disturbance with Four
Seasons over this order. There are three additional
hotels under construction at this moment.
I am convinced that Feltex, U.S. will be an obstacle to
our full-fledged representation of Feltex. It stands to
reason that they will feel their role, and thus
importance, diminished vis-a-vis MSA's 47 contract
specialists. The absence of cooperation (or even
communication) from Feltex, U.S. regarding this Four
Seasons situation has helped form these opinions.
In any event, I remain enthusiastic over the
possibilities of MSA taking on the line via Solomans
(sic). We should, however, meet and establish a game
plan soon. We will require samples, procedures, a
pricing structure, additional information about Feltex
and a formal plan to proceed properly."
84. Four Seasons responded to MSA's letter of 16 September 1985 by letter on
24 September 1985 saying:
"Barry, as you state that you legally certified the jobOn the enclosed copies of the purchase orders which Four Seasons had earlier issued to Feltex US, the Feltex US prices had been blanked out.
with Feltex of New Zealand, we would appreciate you
entering the net costs for the enclosed orders, and
confirm that Feltex will now bill these order via M.S.A.,
and M.S.A. bill Four Seasons Hotels."
85. Four Seasons' attitude at that stage was that it was committed to Feltex
US by accepted purchase orders for the carpet, but that
if MSA and Feltex US
agreed that MSA would invoice the same carpet at a lower price it only stood
to gain. Four Seasons expressed
concern was to obtain delivery of the carpet
as ordered, and who invoiced Four Seasons was incidental. On 30 September 1985
Mr Barry
Schneider wrote to Four Seasons as follows:
"I very much appreicate your concern and fairnessAgain, statements in this letter are false. Mr Barry Schneider had not advised Feltex the order would be billed via MSA. He had had no communication whatsoever with Feltex US.
regarding our axminster pricing. Hopefully we can
reciprocate that kindness by providing spirited and
professional coordination and installation. Since you
are allowing the 8.8% duty to be passed on, I would like
to make the pricing F.O.B. Dallas. Thus, confirmation of
pricing is as follows:
Feltex Greenfield ( 8 row) $15.05/s.y.
Feltex Burnside (10 row) $18.53/s.y.
Terms are net cash 30 days from receipt of invoice.
Further 2 1/2% discount available with a 33% deposit.
We have advised Feltex that the order will be billed via
MSA. Thus, I will need confirmed purchase orders at your
convenience. I have retained all the detail to your
September 24th letter, so conversion should be relatively
simple. I have already listed the Feltex order
acceptances in receipt to avoid redundant work on their
end and confirmed your verbal correction to Robin Hogue
(sic) for the conference room No. 123."
86. Mr Cardy contacted Mr Hogg about the MSA correspondence questioning why MSA's quoted price was different. This communication was the first notice to Feltex US that MSA had bid for the supply of Feltex carpet. Mr Hogg could offer no explanation, and said Feltex US would make inquiries.
87. Mr Tooth had been on holiday in September 1985. On his return, Mr Hogg
reported to him and Mr Tooth made inquiries. This led
to a telex dated 8
October 1985 being sent by Mr Tooth to Four Seasons which read:
"Attn: Jamie CardyA copy of that telex was forwarded to Mr Barry Schneider. As anticipated by the telex, meetings then took place between Mr Barry Schneider, Mr Hogg and Mr Tooth. There were at least three meetings, one shortly afterwards, one late in October or early November 1985 (before 7 November 1985) and one on 4 December 1985 at which Mr Murray Deal from Feltex NZ attended from New Zealand. At these meetings Mr Barry Schneider was keen to negotiate a position for MSA as agent for Feltex products in the U.S.A.; Messrs Tooth and Hogg were endeavouring to obtain an explanation for how MSA could quote Feltex carpets at prices below those at which Feltex US could supply. The telex of 8 October 1985 was discussed. Mr Barry Schneider said that Solomons could obtain export credits. Mr Tooth said that he had made inquiries and spoken to the Australian Trade Commission in Los Angeles; there were no export credits. Mr Barry Schneider however said he was in regular contact with Mr Potter, Solomons knew their business, and MSA could supply Feltex carpet in the U.S.A. cheaper than the Feltex US prices. Messrs Hogg and Tooth were perplexed; the explanations given by Mr Barry Schneider seemed unbelievable, yet he was insistent they were correct.
Have received following telex from our head office in
Auckland.
Quote:
Following recent activity by Monroe Schneider in the U.S.
and our subsequent discussions, it may be helpful to
state our view of the situation.
1. Until the 2/10/85 we were unaware that Monroe
Schneider had been promoting Feltex product to
specifiers in the U.S.
2. The prices quoted by Monroe Schneider were supplied
by an Australian retailer, Solomons Limited. The
prices represented guidelines only for product
qualities purchased in set lots, ie. 40 rolls per design.
3. As a result, the prices recently quoted by Monroe
Schneider to U.S. specifiers for specific projects
can not be supported by Feltex. We believe Monroe
Schneider may in fact have made some fundamental
errors in the calculation of their U.S. prices.
4. All pricing for Feltex product sold in the U.S. in
future must in the first instance be approved by our
Los Angeles Office. No pricing from other sources
will be honoured by Feltex for the U.S. without
prior consent of our Los Angeles Office.
5. In recent discussions with Solomons (they apparently
have an equity tie up with Monroe Schneider) they
have assured us they would prefer to have pricing
for all Feltex product quoted directly from our Los
Angeles office to Monroe Schneider. They support
the development of a close working relationship
between Feltex U.S.A. inc. and Monroe Schneider.
6. With reference to point 3 above, the pricing by
Monroe Schneider to Four Seasons for the Las Colinas
Dallas project are unsupportable (sic). The prices
take no account for the number of separate designs,
the resulting short production runs and the large
number of common colours across designs. The prices
quoted by the Feltex Los Angeles office for this
project are the only prices recognized as binding by
Feltex New Zealand Ltd.
Doug it appears to us that there has been an unfortunate
breakdown of communication between Monroe Schneider,
Solomons and Feltex. Clearly Monroe Schneider and Feltex
U.S.A. Inc. should now get together to clarify and
coordinate marketing activities to avoid customer
uncertainty and a repeat of events of recent days.
We have been assured by Solomons that they have
instructed Monroe Schneider to contact you immediately to
set up a meeting to action the above. Please keep me
informed as to progress.
Best regards,
Murray Deal
Unquote.
Hope above clarification and assurance will enable us to
continue the association which we have developed over the
years and that we can quickly put the confusing and
conflicting events of recent weeks well behind us.
Barry Schneider has since contacted me and we expect to
meet within the next few days.
Kind regards,
Doug Tooth"
88. In October and early November 1985 Four Seasons were seeking bid proposals for public area carpeting in Newport, and were about to seek bid proposals from Austin and Beverly Hills. Information on the specifications for these three projects had been given to Feltex US by Four Seasons to enable Feltex US to calculate proposals. The imminence of these projects made it urgent for Feltex US to resolve the matter of pricing with MSA which was also keen to make bid proposals using Feltex product in these three hotels. MSA had earlier offered generic pricing for Newport in its letter of 24 June 1985 to Four Seasons concerning the Dallas Hotel (by offering the same price for both hotels) but clearly enough Four Seasons did not treat that letter seriously.
89. At the meetings in October and early November Feltex US proposed that a joint submission be made to Four Seasons. Feltex US would carry out the technical calculations and discussion with Four Seasons necessary to define the carpet and work out weighted average prices for the grades of carpet required. Feltex US would quote the mill price in New Zealand dollars F.O.B. Auckland to MSA, and MSA would then frame its bid proposal based on these prices. Feltex US was to retain the responsibility for co-ordinating all strike-off approvals, colour approvals and lodgment of final orders on the mill. I accept the evidence of Mr Tooth and Mr Hogg that they agreed to this proposal as a means of establishing whether there was a "window" which enabled MSA to supply Feltex carpet below the Feltex US prices. The proposal was revenue neutral to the Feltex enterprise: either way Feltex NZ sold the carpet at the same price.
90. This proposal met the requirement of Feltex NZ stated in the telex of 8 October 1985 that future pricing must be approved by the Feltex US office. Mr Barry Schneider says that after the telex he spoke with Mr Potter in Adelaide, and Mr Potter explained the Potter formula, and agreed to him applying it to the New Zealand dollar prices nominated by Feltex US. This is inconsistent with Mr Hogg's evidence that during their subsequent meetings Mr Barry Schneider said: "Potter has given me some rough guidelines but I do not know whether it is right or not."
91. On 7 November 1985 Feltex US by letters informed Four Seasons and MSA that it would bid for the Newport project through MSA. Weighted average prices for the relevant grades of carpet were given by Feltex US to MSA in New Zealand dollars. On 14 November 1985 MSA made a bid proposal to Four Seasons for Newport which adopted the Feltex carpet specifications settled by Feltex US with a weighted average price in U.S. dollars substituted for the New Zealand dollar price. In his evidence Mr Barry Schneider was unable to give any calculation utilising the alleged Potter formula, or otherwise, by which the MSA bid prices were related to the Feltex US prices. The prices appear to have no such relationship. As with the Hogan and Hartson bid proposal, Mr Barry Schneider says that his bid proposal was cast at a price as high as he thought the U.S. market would bear whilst still maintaining a competitive edge on other suppliers. By this time MSA had found out the prices for equivalent grades of carpet which Feltex US had contracted to supply to Four Seasons for Dallas. The prices included in the bid price for Newport bear some similarity, and I accept Mr Hogg's evidence that Mr Barry Schneider said he had regard to those prices when making MSA's bid on Newport.
92. On 13 November 1985, the day before MSA's bid proposal was made, two significant things happened. First, Mr Barry Schneider wrote to Mr Potter attaching the Feltex US prices for the Dallas Hotel, and the quotes received by MSA from Feltex US for Newport. He complained to Mr Potter that the latter prices were far too high. He said "I can procure domestically made axminster much less". He also asked Mr Potter to obtain competitive prices from another manufacturer, Brintons Limited, "as Feltex certainly is not the only game in town." Brintons Limited is a United Kingdom manufacturer. How it was thought - if it were - that Solomons could supply carpet from that source at any significant discount below mill cost is not disclosed by Mr Barry Schneider's evidence. Later, in a letter to Mr Potter dated 16 December 1985 in which Mr Barry Schneider emphasises the need to develop "some form of 'standard' axminster pricing" he says that because of the range of prices in New Zealand dollars quoted from time to time by Feltex US "We have assumed pricing closer to market (Brintons)..." This correspondence lends further weight to the view that there was no application of a formula to Feltex US prices by MSA in November 1985.
93. The other event on 13 November 1985 was a visit to MSA head office in
South San Francisco by Mr Budlender, Solomons accounting
officer. Mr Budlender
was overseas investigating computer based accounting systems and the purpose
of his visit was to see the system
recently installed by MSA. Mr Barry
Schneider collected Mr Budlender from the airport. On the drive into the city
Mr Barry Schneider
related his meeting with Mr Barry Solomon and Mr Potter in
Florida. He said Feltex was a good product at a good price with a big
potential in the U.S.A. Mr Barry Schneider was keen to set "ground rules" so
that Solomons and MSA knew where they stood and MSA
could proceed with selling
the product. Mr Barry Schneider complained that he was not getting answers to
questions. He was in a position
where he needed to make commitments but could
not make them until he got the ground rules straight. Mr Budlender said that
he had
no knowledge of that side of Solomons' business and was unable to
respond to his questions. Mr Barry Schneider said that he had spent
a lot of
time and effort arranging the method by which he could market Feltex and,
before he could commit himself, he needed to know
"what the rules were" and
the price, and conditions he was selling on. I have already indicated my
acceptance of Mr Budlender's evidence.
I find that Mr Barry Schneider said
these things. Mr Budlender invited Mr Barry Schneider to let him have a list
of questions requiring
answers. A list was given to him on 14 November 1985.
Questions directed to Solomons included:
"...The list of questions bears out that export credits had been mentioned by Mr Potter as the explanation why Solomons could supply Feltex at a favourable price, but the request for a formula raises more doubt about whether Mr Potter had given a formula. But let it be assumed, as the applicants' case assumes, that a formula had at some stage been given by Mr Potter. An essential aspect of the formula was a 30% export credit. As at 14 November 1985 when MSA made its bid proposal for Newport, no reasonable basis existed which would justify MSA relying on that formula: the likelihood of such a credit being paid by Australia on goods not manufactured in Australia was highly improbable; there was nothing in writing from Solomons to confirm the formula; the existence of export credits had been denied by Feltex US after making inquiry; and Mr Barry Schneider was himself questioning the alleged export credits. That Mr Barry Schneider realised this, and did not hold a belief that there was a commitment as to price or formula for a price by Solomons at that date is demonstrated by his statements to Mr Budlender, and by his written questions. It is not possible to find what the state of mind of Mr Barry Schneider was at 14 November 1985. Whatever beliefs or hopes he may earlier have held that he had found a cheap source of carpet, they had been dashed to the point that he knew he could not rely on them to enter into other commitments. He may still have held lingering hopes that by reason of what had happened he could negotiate a favourable position for MSA either with Solomons or Feltex US, or both, on the Newport carpets if there were no export credits. In any event by quoting close to going market rates he would have known that MSA was not running a significant risk. The absence of risk can be demonstrated by reference to the bid proposal which Brintons Ltd made to Four Seasons for Newport. If MSA had substituted Brintons carpet it would in fact have made a higher profit. The comparison is as follows:
4) Soloman (sic) confirm 30% export credit
A) expressly for goods not made in Australia
5) Explicit understanding of Soloman 'fee' and how FOB
Auckland pricing is impacted when sent thru Solomans
- i.e. a 'formula'."
Rows Brintons MSA quote Quantity ExtraAnother explanation may be that he was keen to maintain a charade that export credits existed to help further his discussions with Feltex US to become its exclusive US distributor for all its products - not just axminster carpets. It is not necessary to resolve these matters. It is sufficient for the disposition of the case that I find, as I do, that at 14 November 1985 there was no reasonable basis for Mr Barry Schneider to believe that there were Australian export credits, and that he did not believe that Solomons was committed to some formula earlier stated by Mr Potter. MSA's prices for Newport were not "based on" a Potter price.
Quote (see (Exhibit (A69) profit
Exhibits A69)
A66, R14)
8 row 18.44 18.85 4195 -$1719.95
(corridors)
8 row 18.44 24.85 2490 $15960.90
(suites)
9 1/2 row 22.95 29.80 1482 $10151.70
10 row 22.95 29.80 1475 $10103.75
$34496.40
94. On 20 November 1985 Feltex US informed MSA that following the joint submissions to Four Seasons for Newport, Messrs Tooth and Hogg had met with Mr Cardy who had suggested that a proposal be made for three hotels - Newport, Austin and Beverley Hills - so as to pass on the benefit of economies of scale to Four Seasons. Feltex US enclosed Feltex prices and specification sheets for the other two hotels, and reduced the Feltex US prices on Newport by 4 per cent. By letter dated 26 November 1985 MSA wrote to Four Seasons revising the MSA bid prices for Newport by 4%, and giving prices for the other two hotels. Again the prices for the other two hotels cannot be related by the Potter formula to the Feltex US New Zealand dollar prices. The prices given were arrived at by Mr Barry Schneider in the same way as the Newport prices: his estimation of the highest price which would remain competitive in the market. Nothing had occurred since 14 November to clarify the questions posed to Mr Budlender on that day. Again, MSA's prices for Austin and Beverley Hills were not "based on" a Potter price.
95. Early in December 1985 Feltex US and MSA were orally advised by Four Seasons that the Newport, Austin and Beverley Hills projects would be awarded to them. Feltex US embarked on the strike-off procedures for Newport which had to be performed to Four Seasons' approval before it would issue batches of purchase orders for each of the different qualities of carpet.
96. The meetings between MSA and Feltex US following the telex of 8 October had not resolved the questions which Feltex US was asking about the alleged Solomon pricing to MSA. The joint submissions to Four Seasons had been agreed to by Feltex US in the hope that it would help clarify the position and it was arranged that a further meeting take place involving Mr Deal from New Zealand who was the Feltex NZ executive to whom Messrs Tooth and Hogg were responsible, and Mr Potter from Solomons. This meeting was arranged for 4 December 1985 but in the event Mr Potter did not attend and the meeting did not clarify the outstanding questions. Mr Barry Schneider assured Mr Tooth that Mr Potter would be present - and confirmed that fact on the morning of 4 December 1985 before Messrs Deal, Tooth and Hogg flew from Los Angeles to San Francisco for the meeting. Why Mr Potter did not attend is not established. In evidence Mr Barry Schneider says that on the evening before the meeting Mr Potter by telephone informed him that for personal domestic reasons he would not be attending. It is odd then that Mr Barry Schneider did not so inform Mr Tooth - and the fact that he assured Mr Tooth otherwise is an indication that his intentions about the meeting were not so much to clarify the Solomon price but to cement an agency relationship with Feltex US.
97. There is a note in the "minutes" of a Solomon Corporate Division executive meeting on 26 November 1985 which records "S. Potter advised that M. Solomon had requested that he cancel his trip to San Francisco next week. He was due to meet Monroe Schneider and Feltex representatives". These "minutes", which were an informal record of the meeting, were prepared by Mr Potter. Mr Myer Solomon was not at the meeting. He denies giving any such instruction - he says he was unaware of the proposed meeting. Mr Barry Solomon and Mr Budlender who were at the meeting have no recollection of this being said. Both were unaware of the proposed meeting - surprisingly Mr Barry Schneider had not mentioned that it was proposed in the discussions on 13 and 14 November 1985 with Mr Budlender. I am satisfied that the San Francisco meeting was not mentioned to Solomons' executives on 26 November 1985, and that Mr Myer Solomon did not give any instruction to Mr Potter. Why Mr Potter did not attend remains uncertain. Correspondence from Mr Barry Schneider to Mr Potter dated 16 December 1985 confirms that a substantial topic discussed on 4 December 1985 was MSA's agency for Feltex products in the U.S.A., and says that "Everything is now contingent on Feltex's confidence in your export credit situation". It was arranged that Mr Deal, on his return to New Zealand, would make his own inquiries, and contact Solomons, about the alleged export credits.
98. The evidence does not disclose what inquiries Mr Deal made. He died before the trial. However in December 1985 Mr Myer Solomon and Mr Peter Stanes, the managing director of Feltex NZ met in the Melbourne airport. In the course of discussion on other matters Mr Myer Solomon says that Mr Stanes asked him for an explanation of Australian export credits. Mr Myer Solomon says that he had no idea why Mr Stanes raised the topic; the inquiry was not said by Mr Stanes to be related to MSA or to any particular transaction which involved Solomons. Mr Myer Solomon replied to the effect "Peter. I don't come into that in any way at all, but you please feel free to have any of your people in Feltex contact anybody in our organisation at all so that you may be able to get the answer for your inquiry". On 23 December 1985 Mr Deal sent a telex to Mr Barry Schneider saying: "Peter Stanes had his meeting with Mier (sic) Solomon but the question of 'special incentives' is still a little up in the air and Mier has agreed to pass information on to Peter". The telex failed to resolve the question of export credits and the question was still unresolved when Mr Barry Schneider and Mr Tooth met in San Francisco on 14 January 1986 to further discuss the proposed agency agreement between their two companies.
99. In the course of discussion concerning the joint submissions for Newport,
Austin and Beverley Hills Mr Barry Schneider had raised
the question of the
Dallas Hotel carpets with Messrs Tooth and Hogg arguing that he should invoice
Four Seasons at MSA's prices,
thus passing on the benefit of lower pricing to
their mutual client. That topic also remained unresolved. By January 1986 most
of
the carpet ordered by Four Seasons for Dallas had been delivered by Feltex
US in accordance with the terms of the August purchase
orders. Following their
meeting on 14 January, 1986, Mr Tooth wrote to Mr Barry Schneider on 15
January 1986, saying, on this topic:
"Since most of the corridor carpet has now been100. Mr Barry Schneider replied to Mr Tooth by letter dated 24 January 1986 :
delivered, it was acknowledged that MSA now needs to
state whether they wish to invoice Four Seasons, as
recently proposed, or whether the original contract will
stand between Feltex and the Four Seasons group. If MSA
decides to invoice this project it was further
acknowledged that MSA will reinburse (sic) Feltex for
duty paid, freight, clearance and any other charges
incurred in the United States."
"I will respond to the Four Seasons/Dallas issue as soonAt the same time Mr Barry Schneider wrote to Mr Barry Solomon the letter of 24 January 1986 which contained the first representations pleaded by the applicants. The letter is exhibit A85. That letter was delivered by international courier to Solomons in Adelaide. The letter enclosed a copy of Mr Barry Schneider's letter to Mr Tooth dated 24 January 1986. Mr Barry Schneider had also sent a copy of his earlier letter of 16 January 1986 to Mr Barry Solomon - the letters of 16 and 24 January 1986 set out at length the proposals for the agency agreement between Feltex US and MSA. Exhibit A85 was marked "Private and Confidential". It read :
as I hear from Solomans (sic) confirming the
implementation of applicable export credits. We will be
invoicing Four Seasons, Doug. the only question will be
at what price."
"I am concerned over Soloman's (sic) inability toMr Barry Schneider's evidence is that early January 1986 in a telephone conversation with Mr Potter when he was again questioning him about the Australian export credits the following exchange occurred:
perform. Based on committments (sic) by Steve Potter and
strong company references by DuPont, I have spent a
considerable amount of time developing a marketing plan
for the U.S.A. with Feltex. And creating significant
exposure in the form of close to $1,000,000 U.S. in
Feltex sales (based on costs factoring in Soloman export
credits). As of this writing, there is no
Solomans/Feltex agreement on the allocation of export
credits, indeed, Feltex does not know that these export
credits are actually the very same that they currently
enjoy.
I have been persistent, heck, redundant in my questioning
of these credits, e.g., their origin, propensity for
withdrawal of government support, limitations in volume
or otherwise restrictions and most pervasively how could
an Australian company receive credits on product
manufactured in New Zealand. It was two conversations
ago when Steve finally confided about the off-shore
company and acceptance of New Zealand credits. The
simple obstacle, one would assume, would be why Feltex
would want to forego what translates to bottom-line
profits for increased sales. It would appear that they
could double or triple their exports to the U.S. and
still not reach the same level of profits attainable with
100% use of the export credits. So, as I see these
negotiations stall, the inescapable conclusion is that
the export credits promised MSA by Solomans will diminish.
Steve tells me that the New Zealand export support is an
astounding 67%. If that is indeed the case, it seems
that there may be room for compromise without irreparable
damage. To make this program work, it must be a 'win-win'
for everyone. Our outstanding contracts and
quotations are based on the following export credit
formula:
Price F.O.B. Auckland, New Zealand
less 22 1/2% Solomans discount
less 30% export credit
plus $1.20/s.y. seafreight to U.S.A. port of entry
plus applicable U.S. duty
Therefore, a Feltex quotation of $34.20 N.Z. F.O.B.
Auckland would translate to $18.55 N.Z. F.O.B. Auckland
($11.44 U.S. F.O.B. U.S.A. port of entry, inclusive of
8.8% U.S.A. duty). This is the premise creating our
interest in the first place and foundation of my current
anxiety.
Steve also quoted standard pricing on Brintons 8, 9, 10
row axminster constructions which were demonstrably lower
than Feltex U.S.A. quotations, e.g., $22.00 N.Z. vs.
$32.00 N.Z. (Brintons, Feltex respectively). Arrangement
of somewhat standard pricing for axminster would be very
helpful to our business.
Hogan Hartson, a 20,000 s.y. order was quoted by Steve to
me at $9.69 U.S. F.O.B. USA port of entry. Feltex is
talking much higher pricing. Murray Deal sent a telegram
explicitly stating higher pricing. Steve asserts they
are wrong and long ago stated a copy of a letter to
Murray establishing the correct facts was on its way to
me. I have yet to see that letter.
Barry, lots of money is at stake. More important than
that, my company's reputation. These ambiguities and
half-truths need be addressed immediately and
forth-rightously (sic). To keep your name clean and ditto with
mine.
Other than these problems, things are going along
famously, as the enclosed Feltex letter indicates. We
have backed off marketing a great deal until this pricing
have backed off marketing a great deal until this pricing
is straightened out, but am sure that in two years time
we could triple or quadruple Feltex's U.S.A. presence.
Also enclosed is the initial part of the Four
Seasons/Newport Beach Hotel order. As you can see, we
need to create the appropriate billing structure. And
figure what MSA's price on the job really is. More
pressing is carpet already shipping to Four
Seasons/Dallas. Approximately 10,000 s.y. priced at
F.O.B. Auckland, 8 row $35.30 N.Z. and 10 row $46.93 N.Z.
Of course, I used the aforestated formula assuming my
price of $19.15 N.Z. and $25.46 N.Z. respectively. You
need to issue P.O.'x to Feltex and I need to invoice Four
Seasons immediately. Hopefully you will be in position
to call me at early A.M. Tuesday 1/28 (Monday 1/27 our
time) to resolve this most pressing Four Seasons price issue.
I hope my judgement has been well placed. I will look to
hear from you on Monday or before and further toward
seeing you in San Francisco the initial week in February."
Mr Potter: "Well, there really is not anMr Barry Schneider said exhibit A85 was written because in this conversation Mr Potter was "just more ambiguous, evasive and equivocal than he had been in the past".
Australian credit, but there is a New
Zealand credit".
Mr Barry Schneider: "Steve...what are you even talking
about?"
Mr Potter: "Don't worry, it's really a New
Zealand credit, there's 67 per cent,
it's a tax benefit and we are going
to have an offshore company
there...Solomons are very very smart
and everything I've said is going to
still hold true. Do not worry, it's
just that it wasn't really
Australian, it's New Zealand because
our research is a lot more."
101. Other evidence establishes that by 17 January 1986 Feltex US and Four Seasons had completed the strike-off procedures for the Newport corridor carpet, and had settled the technical descriptions to be embodied in the Four Seasons' purchase orders. These descriptions were given to MSA by Feltex US on Feltex US "order acceptance" forms dated 17 January 1986. These forms were addressed to "Solomons/MSA Invoicing procedures to be advised "and were the ones enclosed with A85 as "the initial part of the ... Newport ...order". Mr Barry Schneider would have known that he would shortly receive purchase orders for the corridor carpet from Four Seasons, when he would be expected to sign the acknowledged copies to establish a contractual relationship with Four Seasons for that carpet. The agency agreement and a pricing structure which he had been seeking to establish had not materialised, and time was running out. These events explain why A85 was written when it was. On 24 January 1986 MSA did not have a contract for Newport. Although Four Seasons prepared purchase orders for the corridor carpet on about 31 January 1986 and forwarded them to MSA for acknowledgment there is no evidence that MSA signed the acknowledgments at that time. The overwhelming probability is that MSA would not sign the acknowledgments then as it would not commit itself to Feltex carpet at its quoted prices until it had reached an agreement as to price with its supplier. There is evidence that acknowledgment copies of purchase orders from Four Seasons for Newport were signed by MSA in late March 1986, and as a matter of probability I find that none were signed by MSA until after MSA submitted its purchase orders to Solomons on 20 March 1986.
102. The strike-off procedures for Austin and Beverley Hills were completed later. Four Seasons submitted purchase orders for these hotels to MSA during the months of May to August 1986.
103. Exhibit A85 was received by Mr Barry Solomon who was unfamiliar with the matters to which it made reference. Mr Barry Solomon's role in the business required him to be out of South Australia for lengthy periods, and even when he was in South Australia he had little day to day contact with Mr Potter. Mr Potter had been asked by him to handle the inquiry for Mr Barry schneider in June 1985, and thereafter Mr Potter, in his role as national manager of the Corporate Division of Solomons had dealt with communications from Mr Barry Schneider. Through weekly executive meetings of the Corporate Division Mr Barry Solomon had become aware that as the result of Mr Potter's communications with MSA an arrangement between Solomons, Feltex, and MSA was proposed but he had no knowledge of the detail. He says that he had not previously heard of Solomons export credits and he did not understand references to them in the letter. Solomons had no offshore company. The earlier copy letter of 16 December 1985 which Barry Schneider had forwarded to Barry Solomon had made a reference to "export credits with Solomons". It seems that the earlier letter had been passed to Mr Potter by Mr Barry Solomon without him reading it closely, but even if he had read it closely it is unlikely that the significance of its reference to export credits would have been meaningful.
104. Mr Barry Solomon understood exhibit A85 to assert that MSA had won contracts to the value of close to US$1.m. on quotations given by Mr Potter on Solomons' behalf. He understood there was an urgency. He contacted Mr Potter immediately. Mr Potter gave an explanation that credits available from the New Zealand government to a New Zealand exporter enabled Solomons to give good prices. Mr Barry Solomon accepted Mr Potter's explanation, and instructed him "to sort it out". Mr Barry Solomon did not telephone Mr Barry Schneider, as the letter requested. At this point in time Mr Barry Solomon had faith in Mr Potter's ability.
105. In exhibit A85, the "formula" includes "221/2% Solomans (sic) discount". The topic of discounts received little attention from the respondents at trial. Whilst price discounts by mills to large customers are not uncommon in the carpet industry on standard products, particularly in the domestic carpet market, they are virtually unheard of on purchases of custom made commercial carpet - and this for the reason that each job will be separately costed by the mill, and the quoted price will be a net price. The questions given to Mr Budlender on 14 November 1985 do not refer to discounts. discounts were not mentioned by Mr Barry Schneider in his discussions in the October and November 1985 meetings with Feltex US. The respondents' case does not explain how, if Solomons' discount was to be passed to MSA, Solomons would receive any return on the transactions. It was not part of the respondents' case that discounts of, or in the order of, 221/2% were in fact available to Solomons, or indeed that any discounts were available. The respondents' case gave emphasis to the topic of export credits.
106. Mr Potter's response to exhibit A85 was to arrange the meetings in New Zealand for 16 and 17 February 1986 at which Mr Tooth and Mr Barry Schneider would attend from the U.S.A., Mr Barry Solomon and Mr Potter would attend from Adelaide, and officers of Feltex NZ, including Mr Deal, would be present. Mr Barry Schneider says that he thinks he had one short telephone conversation with Mr Barry Solomon before the New Zealand meeting when Mr Barry Solomon said "Do not worry, we stand behind our commitments". I think it is unlikely that this conversation occurred.
107. Mr Barry Solomon flew to New Zealand with Mr Potter on 15 February 1986. His understanding as to the purpose of the meeting was that MSA had to fulfil the contracts referred to in exhibit A85; prices for Feltex carpet were critical for Mr Barry Schneider; and the prices had to be sorted out.
108. On the morning of 16 February 1986 Mr Barry Solomon and Mr Potter
collected Mr Barry Schneider from the airport. Mr Barry Solomon's
evidence is
that later at their hotel Mr Barry Schneider said to him:
"Barry, I am very concerned about the prices which SteveMr Barry Schneider said MSA had won the Dallas Hotel and Hogan and Hartson projects, but did not refer to the other hotels at that time. Mr Barry Solomon said the purpose of the meeting with Feltex NZ the next day was to sort out the problems, and the conversation was taken no further.
Potter has passed on to me...Feltex are playing games and
they are being very, very unco-operative. We were the
people who have gone out and won the business and now
Doug Tooth has gone direct to the Four Seasons, behind
our back. He is trying to steel the jobs away from us.
We have won the business. Doug Tooth is (- he also said
Doug Tooth was) incompetent. We have won the business.
Doug Tooth is just trying to cover his backside. He does
not want us to have the job and he is talking higher
prices. Feltex do not recognize Steve's prices."
109. On the evening of 16 February 1986 a further relevant conversation took
place between Mr Barry Solomon and Mr Barry Schneider
as they were walking
from the hotel to a restaurant. Mr Barry Solomon's evidence of that
conversation is that :
"Barry Schneider said to me, 'We have really got to getOn 17 February 1986 the meeting of all parties commenced in Mr Stanes' office at Feltex NZ. Mr Stanes questioned Mr Potter about "these export credits". Mr Potter could give no satisfactory answer. It became clear to those present that no export credits existed which could be applied to lessen Feltex NZ prices for carpet supplied to MSA through Solomons.
this sorted out at the meetings tomorrow. I am obligated
to supply my customers at the prices quoted'. He then
said to me, 'If I have to pay any more than Steve
Potter's prices I will lose money on the jobs'. He then
said the commercial carpeting is very competitive in the
United States and he had won those jobs at very fine
margins. I said to Barry Schneider that I understood
that because the same applies in Australia. He then said
to me that they just simply had to get supply at the
prices, that he was committed to the Four Seasons and
Hogan and Hartson, that he had entered into contracts
based on the formula which Steve Potter had given him for
the prices of the carpet...My response to Barry Schneider
was that we were all going to meet tomorrow and it will
be sorted out."
110. The meeting then transferred to Mr Deal's office, Mr Barry Solomon
remaining for a time with Mr Stanes to discuss an unrelated
topic. Mr Barry
Solomon joined the others in Mr Deal's office later where Mr Potter was
arguing with Feltex NZ personnel over prices.
To those listening, including Mr
Barry Schneider and Mr Barry Solomon, the debate seemed pointless. The meeting
broke up with Feltex
NZ insisting that the prices it had quoted to Solomons in
response to inquiries through Mr Dunn were correct, and that it would not
supply the carpets at lower prices. Feltex NZ expected MSA and Solomons to
settle between themselves how the carpet would be invoiced.
Messrs Schneider,
Solomon and Potter returned to their hotel. Mr Barry Schneider and Mr Barry
Solomon agreed to meet later at the
swimming pool to resolve the questions
left unresolved by the meetings at Feltex NZ. It is not clear whether Mr
Potter was present
at the pool meeting, but if he were he took no part in the
conversation. Mr Barry Solomon's account of the conversation is as follows
:
"Barry Schneider said to me, 'I'm very concerned aboutMr Barry Solomon says his response was as follows :
Feltex's inability to be able to supply and also deliver.
We have won this business using very tight margins. We
just can't afford to lose any money.' He then went on to
say that the commercial carpet business in the US was
very, very competitive and if he had to pay any more for
the carpet than the prices which Steve Potter had quoted
he would go down, he would really lose a lot of money.
He then went on to say that we are committed to the Four
Seasons hotels and the Hogan and Hartson job and, if we
do not perform, they will be able to claim damages
against our company on the contracts which he had spoken
about. He then went on to say again that margins were
very tight and they just could not afford to pay any more
for carpet."
"I said to Barry Schneider that Solomons would make sure111. I accept Mr Barry Solomon's account of the conversations in New Zealand. I find that the second and the third representations alleged in the statement of claim were made. I also accept Mr Barry Solomon's evidence that he believed the representations to be true. I reject Mr Barry Schneider's denials that he made any reference to profit or profit margins on the projects. I also reject his evidence that at the pool conversation he offered to pay the freight costs from New Zealand to U.S.A. on some or all of the shipments. I find that the topic of freight was not mentioned.
that Feltex would supply the carpet and he would not have
a problem with delivery. We were Feltex's largest
account in Australia and I would use our clout with them
to make sure they performed. It would be our
responsibility...I would make sure that he would not lose
any money because of the prices which Steve Potter had
quoted...I had told Schneider that it would be our
responsibility and I did not want him to lose money."
112. The following day Mr Barry Solomon returned to Australia without meeting again with Mr Barry Schneider. I find that Mr Barry Solomon realised in New Zealand that Solomons stood to lose several hundred thousand dollars in honouring the alleged Potter prices, and so reported to Mr Myer Solomon on his return to Australia, although he intended that Solomons approach Feltex NZ to seek to negotiate lower prices. After Mr Potter returned to Australia he was instructed by Mr Barry Solomon to ensure "that things went smoothly for Mr Barry Schneider and to make sure there were no problems". It seems that in the months which followed the executives of Solomons assumed that Mr Potter had made a fundamental error in giving pricing information, and they accepted the assertions of Mr Barry Schneider as correct.
113. On 3 March 1986 Mr Barry Schneider wrote to Mr Stanes in New Zealand
saying, amongst other things :
"I enjoyed meeting you, albeit in such formalThis letter was written at a time when it is clear that there were no concessions on price possible by MSA purchasing through Solomons. Yet MSA was still seeking to cement an agency relationship direct with the Feltex organisation in which Solomons would have no part. Another letter from Mr Barry Schneider to Mr Deal dated 28 April 1986 confirms this. These letters lend further weight to the view earlier expressed that in discussions with Feltex US from October through December 1985 Mr Barry Schneider's conduct can be explained on grounds other than his reliance on the Potter formula.
circumstances. It took several days, much of it undoing
prior misconstructions, but we emerged with a workable
two-phase agreement...
Murray has indicated a real interest toward our mutual
progress in the States. Because of Feltex capacity
constraints, aggressive representation cannot commence
until mid summer. However, I invite your personal
interest and support, as well. We will create a market
concurrent to your appetite. To sustain that market,
though, will require a real committment (sic) to service
by Feltex. I hope we have your clear mandate in this
regard."
114. On 24 March 1986 Mr Barry Schneider wrote to Mr Potter, with a copy to
Mr Barry Solomon, giving particulars of the five "jobs
secured during the time
we used your pricing and pricing formula". The letter enclosed MSA purchase
orders addressed to Solomons
"reflecting agreed upon pricing" for the Dallas
Hotel and Newport and said it was critical that Solomons issue purchase orders
immediately
to Feltex for both hotels. The letter concluded:
"I appreciate your standing behind your committments andThe enclosed purchase order for the Dallas Hotel showed the price for 8 row Greenfield carpet as US$9.69 and the 10 row Burnside as US$10.59 these being the prices stated in exhibit All. The purchase order for Newport showed prices arrived at by applying the Potter formula set out in exhibit A85 to the Feltex US prices given to MSA in November 1985.
feel everyone is allowed to save face in this way. You
will note that although your pricing included $1.20/sy
freight, I have issued Purchase Orders at F.O.B. Auckland
terms. I am paying Feltex direct for shipping, duty and
handling...hopefully this defrays a bit of the pricing
differential you need to make-up..."
115. The history of the orders received from MSA by Solomons thereafter, and Solomons' placement of corresponding orders with Feltex NZ, is summarised earlier in these reasons. The price paid by MSA for the Hogan and Hartson contract was based on the allegedly quoted price of US$9.69 sq. yd F.O.B. U.S.A. port of entry. The price paid by MSA to Solomons for Austin and Beverley Hills was calculated by applying the Potter formula to the Feltex US prices given to MSA in November 1985. In each case the price paid to Feltex NZ was the mill price originally quoted by Feltex NZ or Feltex US in New Zealand dollars F.O.B. Auckland.
116. The events surrounding the fourth to the seventh representations sufficiently appear from the pleadings earlier set out. It is common ground that there were conversations at the time and between the people alleged and that certain of the representations alleged were made. As to the disputed representations, I find that each of the representations alleged was made by Mr Barry Schneider. These representations were that MSA had won the Austin, Beverley Hills and Hogan and Hartson jobs on very fine margins; that MSA would lose money if it had to pay any higher price; and that MSA was making small margins on all the jobs.
117. The representations assert the truth of the following broad
representations:
(a) By 24 January 1986 MSA had outstanding "contracts" which
it was committed fulfil, lest MSA become liable in(b) The "contracts" were based on prices given by Mr Potter
damages and suffer a loss of reputation.
or on the Potter formula.(c) In the case of the Dallas Hotel MSA had negotiated the
job but Feltex US had attempted to steal the job.(d) The prices quoted by MSA on each job involved very small
profit margins; the contracts had been won on very smallProposition (a). In January and February 1986 Mr Barry Schneider knew that MSA was not committed on the Hogan and Hartson job.
profit margins; and if MSA were required to pay any more
for the carpets it would suffer a loss.
118. I have already described why Hyman could not contract with MSA in the
latter part of 1985. On 2 December 1985 Mr Barry Schneider
wrote to Hyman
saying.
"lastly, it has been over four months since our lastThis was followed up by a statement in a later letter dated 22 January 1986 when Mr Barry Schneider wrote:
quotation. The U.S. dollar has gotten weaker thus
increasing the price of imported carpet. The
manufacturers 25% deposit requirement was, in part, meant
to hedge against this very occurance (sic). I think we
ought to execute our contract and facilitate the deposit
payment a.s.a.p. before we are hit with the higher
pricing consequential to the change in currency exchange."
"Again, I cannot overemphasize the cost impact of theExhibit A85 asserted to Solomons that Mr Potter had quoted US$9.69 F.O.B. U.S.A. port of entry. On that footing the risk of exchange fluctuations rested with Solomons. After the New Zealand meetings, Mr Barry Schneider contacted Hyman on 3 April 1986 and claimed an additional US$89,213 to compensate MSA for currency fluctuations. In a confirming letter Mr Barry Schneider said: "This represents a change in U.S. price of the New Zealand currency from 43c at bid time to 53.8c."
dropping dollar, it is approaching the 20% differential
level. Let's try and get this thing wrapped up and
ordered a.s.a.p."
119. Mr Meloan's reaction to this claim was to contact South Eastern Flooring, one of the other contractors who had made a bid proposal, to inquire if it could still supply according to its bid. Clearly, Hyman did not treat itself as bound to MSA. Contrary to Mr Barry Schneider's evidence I am satisfied that it was not too late for Hyman to go to another carpet supplier. South Eastern Flooring would have required an extra $45,000, so Mr Meloan negotiated with Square 290, Hogan and Hartson and Mr Barry Schneider to work out a compromise. The solution reached was that MSA would reduce its claim for $89,213 by $42,000; Square 290 would increase the deposit to be paid on signing the contract from 25% (i.e. about $175,000) to $500,000; and the reduced claim would be shared by Hogan and Hartson as to $7,686 and Hyman as to the balance. Having regard to the present value of the immediate payment of the increased deposit, MSA effectively improved its position by about the amount claimed - by about $89,000. The sub-contract was signed on 9 April 1986 for the amended price. The agreed deposit was paid on 21 April 1986. On 14 April 1986 MSA opened a "master worksheet", an internal record of MSA which is one of the first things MSA does when it wins a job.
120. In the course of the negotiations over the exchange fluctuation claim Mr Barry Schneider said to Mr Spivey that the extra amount was a direct result of the mill in New Zealand not being able to hold its original pricing commitment to MSA because of the growing exchange rate difference. He said that the mill had been writing him letters saying he needed to get his sub-contract executed. Mr Spivey asked for copies to demonstrate these facts, and on the footing that the letters would be supplied the negotiations progressed. No such letters existed. The explanation which Mr Barry Schneider had given Hyman, and Mr Spivey, was false. MSA was not exposed to any currency fluctuation. To cover the request from Mr Spivey, Mr Barry Schneider telephoned Mr Hogg who was travelling on the East Coast and said that he had to see him urgently in Dallas as he was having trouble finalising the Hogan and Hartson negotiations. After some persuasion Mr Hogg agreed to break his return journey to Los Angeles. He arrived in Dallas on 21 April 1986. Mr Barry Schneider explained that he needed Mr Hogg to sign three letters on Feltex US letterhead to enable him to secure the Hogan and Hartson contract. Mr Hogg gave him Feltex US letterhead and Mr Barry Schneider had letters typed up. When he saw the text, Mr Hogg was reluctant to sign. The letters were addressed to Mr Barry Schneider, President, Monroe Schneider Associates, and bore the dates 7 June 1985, 14 August and 27 January 1986. Their text dealt with the topic of exchange fluctuations. The dates were false as was the content.
121. Mr Barry Schneider was persuasive. He related the historical events that led up to that day referring to all the effort which had been expended on attempting to secure and finalise the Hogan and Hartson job. MSA had committed considerable time and resources. If Mr Hogg would not comply with Mr Barry Schneider's request the job would be lost. The letters were a necessary part of clinching the deal.
122. Mr Hogg says he was tired at the end of a business trip, he was anxious to catch his plane back to Los Angeles. He felt under pressure. He signed the letters, but when he left the MSA office very much regretted having done so. Copies of the false letters bearing Mr Hogg's signatures were sent by MSA to Mr Spivey, who treated them as fulfilling the request for proof which he had requested.
123. On his return to Los Angeles, at the first opportunity, Mr Hogg confessed what he had done to his superior Mr Tooth. Mr Tooth wrote immediately to Mr Barry Schneider protesting about his conduct. Mr Barry Schneider's reply to that letter (see exhibits A115 and A203) illustrates how lightly he treats the truth. A letter written by Mr Barry Schneider to Mr Deal the same day complaining about Mr Tooth provides another example of his double dealing. The events surrounding the claim by MSA for the extra payment from Hyman show the deception to which Mr Barry Schneider will resort to further his financial interests.
124. Mr Barry Schneider's explanation to Mr Hogg as to the purpose of the letters is further proof that the people who had been involved in the discussions between Hyman and MSA from September 1985 through to March 1986 understood that there were no binding commitments between them. Mr Hogg had been involved; he knew the industry and the state of play between the participants in the negotiations over the Hogan and Hartson carpet. Mr Barry Schneider knew that Mr Hogg would understand that MSA had not won the contract, and would not do so until it had a signed contract with Hyman.
125. MSA was not committed to Four Seasons for the Dallas Hotel in January or February 1986, and even is MSA were to invoice Dallas for the carpet Mr Barry Schneider knew that he could do so at a price higher than his original bid proposal as already adjusted to include the 8.8% import duty.
126. Mr Barry Schneider's conduct in relation to the invoicing of Four
Seasons for the Dallas Hotel was also dishonest. Prior to
the New Zealand
meeting Mr Barry Schneider had not invoiced Four Seasons for the obvious
reason that he did not know that he could
better the Feltex US price, but he
had on 27 January 1987 written to Mr Cardy saying:
"As I mentioned on the phone, we are planning to invoiceAfter the New Zealand meeting, on 18 March 1986 Mr Barry Schneider issued MSA invoices for the Dallas Hotel utilising the prices initially given on 24 June 1985, increased by 8.8% for import duty and increased again on account of an "exchange rate change from .45 to .535 (New Zealand dollar in U.S. currency)". The invoiced price was marginally below the contract price originally agreed with Feltex US. As with Hogan and Hartson, on the footing that Solomons would honour the alleged prices given in exhibit A11 for carpet F.O.B. U.S.A. port of entry, MSA bore no exchange risk. The extra amount invoiced to Four Seasons for currency fluctuation in March 1986 was US$36,085.06.
Four Seasons direct on Inn and Conference Center,
however, it will be a week to 10 days before I can
ascertain final pricing. The U.S. dollar has dropped
considerably since my June '85 quotation and I am
struggling to find savings."
127. MSA had no contractual commitment to Four Seasons for Newport prior to the New Zealand meetings. Four Seasons' chosen contracting procedures may have been designed to protect it from becoming committed to a supplier until its formal purchase orders had been issued and accepted, but those procedures work both ways. Until the purchase orders were completed Four Seasons could have no cause of action against MSA if MSA withdrew its bid proposal at a late stage in the negotiations. In a loose commercial sense, had this occurred, Four Seasons may have considered it had been let down by MSA. By late January 1986 Four Seasons would have encountered difficulty in obtaining the carpets from an alternative manufacturer as the time schedule for Newport was then tight. Had MSA withdrawn, and had Four Seasons opted to continue with Feltex US, the cost price of the carpets would have increased. It is distinctly possible that in these circumstances Four Seasons would have viewed MSA as an unreliable supplier. It is reasonable to assume that the attitude which Four Seasons would have adopted would have been tempered by the excuse offered for the withdrawal. Mr Barry Schneider is a persuasive man and he may have satisfied Four Seasons that MSA was blameless. It is however unnecessary to pursue these matters as the MSA bid proposal was not based on Potter prices. The predicament of MSA, had Solomons not agreed to supply, would have been of its own making.
128. The situation with Austin and Beverley Hills was similar to Newport. MSA had no contractual commitment. With these two hotels the time schedules were not so pressing. In January or February 1986 there would have been ample time for Four Seasons or MSA to substitute carpet from another manufacturer perhaps at little or no extra cost. Statements suggesting the contrary in the evidence of Mr Barry Schneider and Mr Cardy are not borne out by the other evidence. If strike-off procedures for these hotels had commenced with Feltex US, they were still at an early stage in February 1986.
129. Proposition (b) I have already discussed in relation to each job. The generic pricing given by MSA for the Dallas Hotel in June 1985 was fixed having regard to market price considerations. The prices nominated were at the most only remotely related to information received from Mr Potter, even assuming exhibit A11 records information intended to be used for the Dallas Hotel. In the event that pricing was unsuccessful. The Hogan and Hartson bid was not based on information received from Mr Potter. The prices nominated by Mr Barry Schneider in the MSA bid proposal for Newport, Austin and Beverley Hills in November were calculated having regard to market price considerations, and were made at a time when Mr Barry Schneider had come to realise that whatever Mr Potter had said in the past was of doubtful validity, and that he had no commitment from Solomons, through Mr Potter, which he could rely upon. Proposition (b) was false to the knowledge of Mr Barry Schneider.
130. Proposition (c) is contrary to the evidence. I find that there was no reasonable basis on which Mr Barry Schneider could have held a belief that Feltex US was attempting to steal the Dallas Hotel job and that in any event he did not hold such a belief. Mr Barry Schneider knew full well the job had been awarded to Feltex US before Feltex US knew MSA had made a bid proposal, and, notwithstanding that, that by January 1986 Feltex US was prepared to allow MSA to invoice the job, i.e. to assign the contract to it, if this would produce a saving for Four Seasons. Proposition (c) was false to the knowledge of Mr Barry Schneider.
131. So too was proposition (d). The profit margins on each job were not small. They were well above normal margins for axminster carpet at that time in the U.S.A. The margins of mark up and likely gross profits on the sale of the carpets are illustrated by exhibit A248 in particular, but also by exhibits A173, and A205 to A208 inclusive. Exhibits R15, R16, R17 and R70 do not deny this conclusion.
132. Although of only marginal relevance on this point, much evidence was led
by the respondents about MSA's actual profits on the
jobs. The estimation of
actual profits is made difficult by the fact that in each instance MSA also
installed the carpets, and the
MSA accounting records make no attempt to
allocate any part of the company's fixed overheads to individual jobs. The
evidence of
Mr Adair is that his best efforts to calculate the gross profit
received by MSA on each of the jobs show:
JOB REVENUE COST GROSS PROFIT (US$)Fixed overheads may have reduced these gross profit figures. It is not clear how far allowance for fixed overheads may be included in the above figures. In the case of Hogan and Hartson an intra-office billing of $30,000 is included as a cost which makes some provision for overhead. I do not accept that the jobs were rendered marginal, or unprofitable, on this account.
Dallas 351346.89 221915.26 129431.63 = 36.83%
Hotel
Beverley 435316.35 367455.12 67861.22 15.59%
Hills
Austin 338430.17 243312.44 95117.73 28.11%
Newport 429152.14 385630.89 43521.25 10.14%
Hogan and 765120.24 623444.44 141675.80 18.5%
Hartson
133. In his cross-examination Mr Barry Schneider conceded that if he had made the statements alleged about margins, profit, and losses if MSA were required to pay more for the carpets, those statements would have been false.
134. Other than those parts of the fourth to seventh representations inclusive which stated, correctly, that Feltex NZ was threatening to suspend work on MSA projects, and those parts of the sixth and seventh representations which refer to possible claims by Hogan and Hartson if the carpet were not supplied, the representations alleged by the applicants were in each case false, and false to the knowledge of Mr Barry Schneider at the time when they were made. The composite effect of the representations was clearly designed to induce Solomons to pay in full the difference between the alleged Potter prices and the cost of purchase from Feltex NZ.
135. I accept the evidence of Messrs Barry and Myer Solomon that had they known the true position, or become aware of it before they committed Solomons to pay Feltex NZ for the carpets, they would not have incurred the expenses which they did in purchasing those carpets for supply to MSA according to the alleged Potter prices. I find that Solomons, through Messrs Barry Solomon and Myer Solomon relied on the false representations, and that by reason thereof Solomons suffered loss and damage.
136. In support of the respondents' contention that the loss and damage suffered by Solomons was due to the erroneous and misleading pricing information given by Mr Potter it was argued that the failure of officers of Solomons to respond to inquiries and correspondence made by Mr Barry Schneider on and after 14 November 1985 compounded and perpetuated the influence which Mr Potter's earlier errors had upon MSA. It was pointed out that Solomons failed to respond at all to the written questions given to Mr Budlender on 14 November 1985 (they had been tabled by Mr Budlender at the Solomons Corporate Division meeting on 26 November 1985. Mr Potter was instructed to answer them, but did not); Mr Barry Solomon failed to respond to the copy of Mr Tooth's letter of 16 December 1985 (although the letter would hardly be understood by Mr Barry Solomon as one that was seeking any response from him); and Mr Barry Solomon failed to respond to A85 prior to the New Zealand meeting. These omissions combined with the failure of Mr Potter to attend the meeting on 4 December 1985, and the lack of clear response from the Feltex organisation following that meeting, placed MSA in an invidious position which was not of its making. Even if these arguments were correct they do not assist the case for the respondents. MSA did not alter its position to its detriment in reliance upon information from Mr Potter during this period. However I do not accept the argument that MSA is to be exonerated from any responsibility for the continuing uncertainty which existed during the period after 14 November 1985. On his own evidence, whatever lingering hopes Mr Barry Schneider may have retained about information given by Mr Potter must have been destroyed when Mr Potter, on a most feeble excuse, failed to attend the meeting on 4 December 1985. Why then, or at a later time, did he not telephone Mr Barry Solomon? With the benefit of hindsight criticism can be made against both MSA and Solomons for steps which were not taken in this period - but as I have observed, nothing turns on this in the result.
137. In my opinion the applicants have proved that by reason of the fraudulent statements and conduct of Mr Barry Schneider and MSA they have suffered loss and damage.
138. The amount of that loss is quantified in exhibit A247 at A$895,263.65 being the difference between A$1,642,754.42 paid by Solomons to Feltex NZ for the carpets and A$747,490.77 received by Solomons from MSA. The preparation of exhibit A247 and the sources of the information incorporated therein by Ms Orr was not subject to challenge in the respondents' case. In my opinion the exhibit reflects a proper assessment of the applicants' loss according to legal principle: see Gould and Anor v. Vaggelas and Ors (1985) 157 CLR 215.
139. One matter on damages was however pressed on the respondents' behalf. It was contended that an amount of NZ $400,000 should be deducted from the exhibit A247 assessment on the ground that Solomons was able to reduce its losses by this amount in negotiations which occurred in August 1986 with Feltex NZ.
140. Following the New Zealand meetings on 16 and 17 February 1986 Mr Barry Solomon anticipated that the losses of Solomons could be in the order of A$200,000 - 300,000. He hoped that it might be possible to negotiate more favourable pricing with Feltex NZ. The full magnitude of Solomons' loss did not become apparent to Messrs Myer and Barry Solomon until later when details of purchase orders were obtained. When it came time for Solomons to place purchase orders on the mill, Feltex NZ insisted on the NZ$ F.O.B. prices originally quoted by Dunn and Feltex US.
141. In mid 1986 Solomons encountered severe liquidity problems partly due to
a rapid expansion program which had been underway in
Australia and partly due
to the requirements of the MSA transactions. Payments to Feltex NZ fell into
arrears. Feltex NZ made threats
not to manufacture orders for MSA. Against
this background Mr Myer Solomon and the applicants' solicitor Mr Simmons met
Mr Stanes
and another senior executive of Feltex NZ. Mr Myer Solomon explained
the financial predicament of Solomons. He asked if Feltex NZ
would consider
reducing their prices. Feltex NZ refused. However they did offer to assist
Solomons by participating in an advertising
campaign in Australia designed to
increase the sales of both companies. The proposal was accepted, and the terms
reduced to writing
acknowledged by both sides. The memorandum reads:
"TERMS OF SETTLEMENT SOLOMONS/FELTEXParagraphs nod. 1 and 2 confirm that Solomons would pay the previously quoted Feltex NZ prices, and this later happened. Paragraph nod. 3 indicates that an advertising programme had already been planned. The respondents contend that any reimbursement of costs by Feltex NZ are therefore a direct benefit to Solomons which in substance amounted to a reduction in the purchase price of the MSA carpet. This submission overlooks the evidence, which I accept, that contributions by manufacturers to advertising campaigns were a common feature of the industry; and further, that it is not established that Feltex NZ would not have made some contribution to the advertising campaign in any event, or that the advertising campaign which followed the "settlement" was not more extensive than originally envisaged because of the benefit paid by Feltex NZ. The onus rests on the respondents to clarify matters of that kind: Volpato v. Zachory (1971) SASR 166. In the following 12 months Solomons spent on the promotion of Feltex products approximately A$590,000.
RE: MONROE SCHNEIDER ASSOCIATES
1. Solomons will pay Feltex for carpets delivered to
MSA in USA for use in the Four Seasons hotels listed
below at the prices and on the terms as quoted by
Feltex to MSA and confirmed to Solomons in telex
from P. Bradley to S. Potter and dated 8th April, 1986.
The Four Seasons hotels are :
$NZ FOB Auckland
Los Colinas, Dallas 482,437
Newport Beach, California 549,073
Austin, Texas 342,763 *
Los Angeles, California 279,588 *
* These may vary depending on final area involved
$NZ55,068.09 is included in the Los Colinas job for
freight, duty and landing charges and similarly
$NZ111,187.05 for Newport Beach freight, duty and
landing charges.
2. At Solomons request, Feltex will charge part of the
price for the Hogan and Hartson carpet to MSA and
part to Solomons in Australia. Details of this
arrangement have to be agreed between Steve Morris
and Pat Hickey. Once agreement is reached, Solomons
will advise MSA.
3. Feltex will participate in Solomons forthcoming
major promotion as presented to the trade last week
by paying Solomons $NZ200,000 at the end of each of
September and December 1986 on receipt of invoices
from Solomons confirming advertising and promotion
of Feltex products in Australia. Feltex will also
provide suitable product profiles to Solomons to
assist in this promotion.
4. We understand and accept that Solomons loss is made
up of the following three elements :
a. The difference between the Feltex quoted price
and the Solomons Hepples-based price for Hogan
Hartson.
b. The freight, landing charges and duty into the
USA on all five MSA jobs (Los Colinas, Newport,
Austin, Los Angeles, Hogan Hartson).
c. The difference between the Feltex quoted prices
as confirmed in the telex dated 8th April,
1986, and the Solomon Hepples-based prices for
Los Colinas, Newport, Austin and Los Angeles
less the Feltex contribution of $NZ400,000.
In this way, the total loss to Solomons and Feltex
is borne in the ratio of approximately 60:40. We
further understand that any payments made by MSA to
either Solomons or Feltex which reduce these costs
will be divided equally between Solomons and Feltex.
Solomon made mention of two likely payments by MSA
which will fall into this category, one of which was
a reduction in MSA margin amounting to $US20,000
which was promised as a gesture by MSA to Solomons
and the other was an agreement by MSA with Solomon
for MSA to pay a contribution to the freight on
Hogan Hartson of $US32,000. In addition, it was
noted that there was a documented acceptance by MSA
of the freight, landing charges and duty liability
on all jobs after Los Colinas and Newport which
should yield an even further reduction of the total
loss.
Mr. Myer Solomon undertook to make contact with MSA
to begin discussions which might lead to MSA making
further contributions to the total loss, but it was
recognised that this was unlikely. On request from
Mr. Simmons, Feltex agreed to make available to him
all correspondence between MSA and Feltex in case a
comparison of this with documentation between
Solomon and MSA showed anything on which the basis
of a MSA contribution to the total loss could be
argued."
142. However even if the payment of NZ$400,000 is rightly to be characterised as a payment by Feltex NZ to Solomons to relieve against the losses suffered by Solomons in the MSA transactions, I do not consider that the payment is to be brought to account in the respondents' favour in the assessment of damages.
143. Counsel for the respondent relied on British Westinghouse Electric and
Manufacturing Company, Limited v. Underground Electric
Railways Company of
London, Limited (1912) AC 673. That was a breach of contract case. Viscount
Haldane L.C., at p 689, said:
"The fundamental basis is thus compensation for pecuniaryLater in his speech Viscount Haldane emphasised however, at p 690, that:
loss naturally flowing from the breach; but this first
principle is qualified by a second, which imposes on a
plaintiff the duty of taking all reasonable steps to
mitigate the loss consequent on the breach, and debars
him from claiming any part of the damage which is due to
his neglect to take such steps. In the words of James
L.J. in Dunkirk Colliery Co. v Lever (1878) 9 Ch D 20,
at p 25, 'The person who has broken the contract is not
to be exposed to additional cost by reason of the
plaintiffs not doing what they ought to have done as
reasonable men, and the plaintiffs not being under any
obligation to do anything otherwise than in the ordinary
course of business.'
As James L.J. indicates, this second principle does not
impose on the plaintiff an obligation to take any step
which a reasonable and prudent man would not ordinarily
take in the course of his business. But when in the
course of his business he has taken action arising out of
the transaction, which action has diminished his loss,
the effect in actual diminution of the loss he has
suffered may be taken into account even though there was
no duty on him to act."
"The subsequent transaction, if to be taken into account,A wider formulation of the rule which more readily includes claims arising in tort, is that matter completely collateral and merely res inter alios acta cannot be used in mitigation of damage: cf British Transport Commission v. Gourley [1955] UKHL 4; (1956) AC 185 at 214 per Lord Reid. McGregor on Damages 15th ed. at para.326 observes that this formulation has the great merit of stating the rule at once concisely and completely, but it gives no indication of how the rule operates and of what solutions would be reached when applying it to particular circumstances. The same criticism has been made by the High Court of Australia: The National Insurance Co. of New Zealand Ltd v. Espagne [1961] HCA 15; (1960-1961) 105 CLR 569. In Australia it has been held that what determines whether a plaintiff who has suffered a loss ought be debited with the amount of a subvention received from a third party is the character and purpose of the payment. The principles formulated in Espagne's case by Dixon C.J., at p 573, and Windeyer J. at 599-600 were reviewed by the High Court in Redding v. Lee [1983] HCA 16; (1982) 151 CLR 117 where, after referring to Espagne's case, Gibbs C.J. (at p 125) said:
must be one arising out of the consequences of the breach
and in the ordinary course of business."
"The test suggested is a general one, and it requires theand Mason and Dawson JJ. at p 137, said:
court to consider the nature of the benefit which the
defendant seeks to set off against the damages, and to
enquire whether the person or body supplying the benefit
intended that the plaintiff should enjoy it in addition
to whatever damage he might recover from the defendant."
"They (the principles expressed by Dixon C.J. andIn my opinion the same principles should be applied in the present case. The terms of the final three paragraphs of the memorandum make it plain that the benefits granted by Feltex NZ were not intended to be in diminution of any legal rights which Solomons may have had against MSA.
Windeyer J. in Espagne) make it clear that the issue
turns on the character and purpose of the particular
financial benefit which the plaintiff receives: Was the
benefit conferred on him independently of any right or
redress against others and so that he might enjoy the
benefit even if he enforced the right?"
144. As envisaged by the last paragraph of the settlement memorandum, Mr Myer Solomon made contact with MSA and travelled to the U.S.A. in November 1986 to confer with Messrs Monroe and Barry Schneider. It is not necessary to canvass what happened save to say that Mr Myer Solomon came away dissatisfied. Later inquiries instituted by him with MSA's clients led to these proceedings.
145. In addition to the loss computed in exhibit A247, compound interest thereon is claimed in accordance with the principles laid down in Hungerfords and Others v. Walker and Others [1989] HCA 8; (1988) 84 ALR 119. For most of the time which has intervened since the loss was incurred Solomons has been a net borrower at overdraft rates from the Westpac Banking Corporation. On the occasions when the accounts have been in credit the surplus has been invested immediately. In my opinion the damages should include an amount, calculated as compound interest, for the incurred expense of borrowing money to replace the money paid to Feltex NZ, and for the opportunity cost of those moneys when borrowings were not being made. The arithmetic of the calculations made by Ms Orr in exhibit A247 which arrive at an interest calculation of A$757,994.56 to 5 August 1990 have not been challenged. Calculations handed up on the applicants' behalf show that to 19 November 1990 the amount would have risen to A$836,801.21. However the calculations assume continuous borrowing at overdraft interest rates, whereas there would have been times when an opportunity cost at a lower rate would be appropriate. This aspect of the damages can only be assessed broadly having regard to exhibit A247 as a guide, and also making allowance for the interval of time between 19 November 1990 when the calculations conclude and the delivery of judgment. I assess the "interest" component of the damages at A$800,000 and assess the total damages at A$1,695,263.65.
146. Although the respondents at no time before trial were present within the territorial limits of Australia, no jurisdictional obstacle arises on the applicants' claim for damages based on the established fraud. After the proceedings were served out of the jurisdiction and in the U.S.A., pursuant to leave given on an ex parte application under FCR 0.8, rr.1 and 2, the respondents applied on notice of motion to discharge the order giving leave to serve outside Australia. The motion was brought under FCR 0.9, r.7(1)(d). The notice of motion was dismissed on 20 September 1989. There has been no appeal against that order and the conditional appearance now stands for all purposes as an unconditional appearance: FCR 0.9, r.6(2).
147. The cause of action for the tort of deceit, constituted by the respondents' fraud, arose in Australia even though the respondents at all times were outside Australia, because, the fraudulent misrepresentations were intended by the respondents to be acted upon, and were acted upon, by the applicants in Australia thereby causing the applicants' loss in Australia. Not until the applicants acted to their detriment upon the fraudulent misrepresentations was the cause of action complete: Diamond v. Bank of London and Montreal Ltd (1979) 1 QB 333 esp. at 348-350, and Original Blouse Company Ltd v. Bruck Mills Ltd (1963) 42 DLR (2d) 174, 180-182.
148. However in relation to the claim based on a contravention of s.52 of the TP Act it is pleaded in para.37(d)(ii) of the defence that the conduct alleged in New Zealand, because it occurred outside Australia, is not conduct to which s.52 can apply. I am inclined to the view that this contention is correct. Neither respondent comes within the extended applications of Part V of the Act provided by sub.ss.5(1) and (2), and as a matter of construction a statute will be presumed to apply only to the territory or nationals over which the legislature has jurisdiction in the absence of a clear indication to the contrary: The Queen v. Foster; ex parte Eastern and Australian Steamship Co. Ltd [1959] HCA 10; (1958-1959) 103 CLR 256 at 275 per Dixon C.J. and Meyer Heine Pty Ltd v. The China Navigation Co. Ltd [1966] HCA 11; (1965-1966) 115 CLR 10 at 23 per Kitto J. But on the facts, this contention is of no assistance to the respondents. It is clear that the balance of the conduct by MSA relied on as being conduct that was misleading or deceptive in contravention of s.52 is conduct to which the TP Act applies. It is admitted that the conduct occurred in trade or commerce between Australia and places outside Australia namely the U.S.A., and that MSA is a "foreign corporation" within the meaning of the TP Act. The representations, other than the second and third representations, although originating from Mr Barry Schneider in the U.S.A., were made by letter or telephone to Solomons in Australia intending that Solomons act on them in Australia. The conduct constituted by the making of the representations occurred in Australia. The specific representations alleged by the applicants form part of a course of conduct by the respondents which led ultimately to the losses suffered by the applicants. The first representation, made by exhibit A85 in Australia, did not cease to influence Mr Barry Solomon when he travelled to New Zealand. The events which caused loss and damage to Solomons were the acceptance of purchase orders from MSA and the issuing of corresponding purchase orders to Feltex US at higher prices. The first of these events occurred on 24 March 1986 when purchase orders for the Dallas Hotel and Newport were processed by Solomons. The receipt of the purchase orders from MSA dated 18 March 1989 and posted to Solomons under cover of the letter of 20 March 1986 for these hotels constituted part of the overall course of conduct. The false statements made by Mr Barry Schneider in New Zealand were either expressly repeated in the letter of 20 March 1986, or were allowed to go uncorrected in circumstances where Mr Barry Schneider intended Solomons act to their detriment in the erroneous belief that the prices stated by MSA in the purchase order were the basis of contracts to his clients which committed him to supply at prices set at a very low profit margin. The delivery of the MSA purchase orders in Australia to Solomons without correcting that misunderstanding was an integral part of the course of conduct on which the applicants rely. Purchase orders later accepted from MSA and the corresponding purchase orders placed with Feltex NZ were also induced by the fourth to seventh representations made in Australia.
149. It follows from the findings already made that the conduct of MSA was misleading and deceptive. Conduct in contravention of s.52 need not be the only cause of the applicants' loss or damage which may be recovered under s.82: Elders Trustee and Executor Co. Ltd v. E.G. Reeves Pty Ltd [1987] FCA 332; (1988) 78 ALR 193 at 242, 243 per Gummow J. Section 82 requires that the loss or damage be suffered "by conduct of another person that was done in contravention of a provision of Part IV or V". Even if the conduct of Mr Barry Schneider in New Zealand is conduct not caught by the provisions of s.52, I am satisfied that the loss and damage suffered by Solomons was suffered "by" the conduct of MSA in Australia which was in contravention of s.52.
150. The defence also sets up a plea of contributory negligence, and alleges that the claim under the TP Act is out of time - the proceedings having been commenced on 14 February 1989. These matters cannot be sustained.
151. Clerk and Lindsell on Tort, 15th ed. at 854 says in relation to a claim
for damages in deceit:
"Carelessness of plaintiff in not discovering the untruthThis passage was applied to a claim for damages under s.82 for a contravention of s.52 of the TP Act by Pincus J. in Neilsen v. Hempston Holdings Pty Ltd (1986) 65 ALR 302 at 309, and by Wilcox J. in Collins Marrickville Pty Ltd v. Henjo Investments Pty Ltd (1987) 72 ALR 601 at 613 whose reasoning was unanimously affirmed on appeal: Henjo Investments Pty Ltd and Others v. Collins Marrickville Pty Ltd, [1988] FCA 40; (1988) 79 ALR 83 at 96,106. See also Sutton v. A.J. Thompson Pty Ltd (in liq.) and Others (1987) 73 ALR 233 at 241.
no defence. A person to whom a misrepresentation is made
is not deceived if he actually knows the truth, i.e.
knows the falsity of the representation at the time it is
made to him, but it is no answer to an action for
misrepresentation that the plaintiff might have
discovered the falsity by the exercise of ordinary care."
152. The loss suffered by the applicants occurred less than three years before the issue of the proceedings, and the cause of action under ss.52 and 82 of the TP Act was not complete until damage occurred: Fenech v. Sterling (1983) 51 ALR 205 at 221, James v. ANZ Banking Group Ltd (1985) 64 ALR 347 at 392-393 and S.W.F. Hoists and Industrial Equipment Pty Ltd v. State Government Insurance Commission (1990) ATPR 41-045 and see Jobbins v. Capel Court Corporation Ltd (1989) 91 ALR 314.
153. It is not in dispute that Mr Barry Schneider was a person knowingly concerned in the contravention within s.75B.(1)(c) of the TP Act. The applicants have also made out their claim for damages under the TP Act. In the circumstances of the present case the same principles of assessment of damages apply as for the claim for the tort of deceit; the assessment of damages is the same.
154. In light of these conclusions it is unnecessary to consider the alternative claims for damages under s.7 of the Misrepresentation Act 1971-1972 as amended (S.A.), and for remedies based on unjust enrichment.
155. The remaining issue is a claim for exemplary damages. Exemplary damages are not available in a claim for damages under the TP Act: Munchies Management Pty Ltd and Anor v. Belperio and Anor (1988) 11 ATPR 50,026 at 50,038. Exemplary damages may however be awarded in an action for the tort of deceit, and this Court is empowered in its accrued jurisdiction to award exemplary damages where that relief would be available at common law: Musca and Others v. Astle Corporation Pty Ltd and Anor. (1988) 80 ALR 251 at 262 et seq. I have held that the respondents made the false representations on which the applicants relied to their detriment knowing that they were false and with the intention that the respondents profit thereby at the applicants' expense. The respondents acted with calculated disregard for the rights of the applicants, and their conduct is deserving of punishment. But exemplary or punitive damages should only be awarded where it is considered that the compensatory damages are not sufficient also to serve the purpose of punishment or deterrence: Cassell and Co. Ltd v. Broome and Anor. [1972] UKHL 3; (1972) AC 1027 at 1089 per Lord Reid, and at 1124-1125 per Lord Diplock. Where the compensatory award exceeds the benefit gained by the defendant by reason of his tort, the case for exemplary damages may be diminished accordingly: Musca and Others v. Astle Corporation Pty Ltd and Anor, at 269.
156. In the case of Hogan and Hartson it is probable that MSA's gross profits at least included the full loss suffered by the applicants on that job. However as MSA supplied the carpets to Four Seasons at less than Feltex NZ prices (after currency conversion) MSA did not receive, by way of gross profits, a sum equivalent to the calculation of the applicants' loss on the hotel transactions assessed in exhibit A247. And out of the gross profits received, MSA bore fixed overhead expenses. The applicants' loss on the transactions as assessed in exhibit A247 exceeds the actual profits made by MSA in the transactions by a considerable extent. Further, from the MSA financial statements it would appear unlikely that it has used the profits of the transactions in a way which has returned to it benefits which offset the award of compound interest. For these reasons I consider no further punishment by way of exemplary damages is warranted.
157. There will be judgment for the applicants for A$1,695,263.65 together with costs.
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/cases/cth/FCA/1991/19.html