Re Gerald Mark Mackman v Stengold Pty Ltd; Semstar Pty Ltd; Kabwind Pty Ltd; William Alan Stone; John Ful-Wood; Paul Thomas Wenham; Ronald William Arnold; Christopher Dhu White; Neville John Douglas Whiley; Bruce Kenneth Simmons and Gavin Hosking [1991] FCA 23 (12 February 1991)

FEDERAL COURT OF AUSTRALIA

Re: GERALD MARK MACKMAN
And: STENGOLD PTY LTD; SEMSTAR PTY LTD; KABWIND PTY LTD; WILLIAM ALAN STONE;
JOHN FUL-WOOD; PAUL THOMAS WENHAM; RONALD WILLIAM ARNOLD; CHRISTOPHER DHU
WHITE; NEVILLE JOHN DOUGLAS WHILEY; BRUCE KENNETH SIMMONS and GAVIN HOSKING
No. Q G327 of 1988
FED No. 79
(1991) 13 ATPR 41-105

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Spender J.(1)

HEARING

BRISBANE
12:2:1991

Counsel for the Applicant: Mr J. Courtis

Solicitors for the Applicant: Claudio Russo Shaw

No appearance for the First Respondent.

Counsel for the Second Mr S. O'Sullivan
Respondent:

Solicitors for the Second Director of Public Prosecutions
Respondent:

ORDER

1. The conduct of the first respondent was conduct in trade or commerce which was misleading or deceptive or likely to mislead or deceive in contravention of s. 52 of the Trade Practices Act 1974.

2. The fourth respondent and the sixth respondents were persons knowingly involved in the contravention of s. 52 by the first respondent.

3. The applicant has suffered loss or damage as a result of the conduct of the first respondent, the fourth respondent and the sixth respondents.

4. The agreement entered into between the applicant and the first respondent in about February or March 1988 is void ab initio.
THE COURT ORDERS THAT:

1. Judgment is given for the applicant against the fourth
respondent for $141,300.
2. The fourth respondent pay to the applicant the sum of
$141,300.
3. Judgment is given for the applicant against Christopher Dhu
White and against Bruce Kenneth Simmons in the sum of
$141,300.
4. Christopher Dhu White and Bruce Kenneth Simmons pay the sum
of $141,300 to the applicant.
5. The costs of the applicant, including reserved costs, if
any, be paid by the fourth respondent and by Christopher Dhu
White and by Bruce Kenneth Simmons, to be taxed if not
agreed.
6. Liberty to apply within 48 hours in respect of any
arithmetical error.

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

DECISION

This is an application under s. 52 of the Trade Practices Act 1974, which concerns the sale of a business supplying a motor vehicle paint protection service. The litigation suffers from the difficulty that at the end of the day relief is sought by the applicant against parties who are not represented or who have deliberately chosen not to be represented.

2. The applicant responded to an advertisement which appeared in the Gold Coast Bulletin in January 1988 which was in these terms:

" WORKING
PARTNER
50/50
Major manufacturing and marketing organisation
require a partner for Gold Coast area. Work
involves public relations, staff control, displays
ideally suit husband/wife or family. Generous
retainer, company car, dividends half yearly ensures
earnings up to $150,000 per annum with option to
purchase all the company after qualifying period.
Initial outlay $100,000 covers 50% of company with
assets of over $300,000.
PHONE [phone]"

3. In response, Mr Mackman received a letter dated 15 January 1988 which refers to "Global Enterprises" on its first line and speaks of that entity as a member of the "Auragold Group". The letter spoke of the "South Pacific rights for Le Guardienne" and said:

"We are currently considering increasing our Dealership Network
... "

Paragraph 8 said:

"There is no Franchise Fee, no Goodwill, only stock and equipment
with Retail value over $300,000."

The letter said further:

"Your original investment is totally secured by an established
Workshop, Showroom, Stock, specially designed Mobile Workshop,
Computerised Robot, Buffers and Generator and all tools
required."

4. A schedule referred to "Stengold Pty Ltd trading as Global Enterprises" and spoke of Auragold Corporation as the "Holding Company". Mr W.A. Stone, who was the fourth respondent in these proceedings, was mentioned as the "Executive Marketing Director." The schedule referred to the accountants as "Nelson Wheeler".

5. Included with that letter, which was signed on behalf of "W.A. Stone, National Marketing Director", were two further documents: one contained a deal of information, and was signed on behalf of "Global Enterprises"; and a second, which is central to these proceedings, is a series of bound documents, the face page of which is headed "Nelson Wheeler", and the first page, after giving the details of Nelson Wheeler, refers to "Stengold Pty Limited, trading as Global Enterprises Le Guardienne Traders."

6. The first document in that bound collection is referred to as a "Projected Partnership Profit and Loss Statement" and is headed "Stengold Pty Limited trading as Global Enterprises and Le Guardienne Traders". That document speaks of projected sales in the first year of $401,700; projected expenditure of $111,700 and a projected profit of $290,000 and various other projections for years from 2 to 6 of the partnership, the projected profits in the seventh year being $547,392. At the foot of that document this appears:

"This projection is to be read in conjunction with the attached
disclaimer of nelson wheeler dated 30 december 1987."

The second document in the bound collection refers to "Notes to Projections". The first note says:

"Projected treatment sales and product purchases have been
calculated on the following basis:-
$ $
SALE COST
a) Sale Value and Cost Price VALUE PRICE
- 1st treatment
Rejuvenator, sealant
and Lustre 169220 42
- 6 months
Sealant and Lustre 65 19
- 12 months
Rejuvenator and Sealant 75 34
____ ____
$309 $95
____ ____
b) Estimated sales projected to be 25 treatments per week
and 1300 treatments per annum.
c) Initial $100,000 outlay entitles partnership to 1000
treatments in first year."

The notes make reference to other projections. It also says that the note is to be read in conjunction with the attached disclaimer of Nelson Wheeler dated 30 December 1987.

7. The disclaimer is in these terms:-

"We have prepared the attached Profit and Loss Statements on pages
1 and 2 supplied by officers of Global Enterprises Le Guardienne
Traders at their request and exclusively for their use and
benefit. We have not audited either the basic records or the
statements. Accordingly we express no opinion as to whether
such statements present a true and fair view of the results of
the company or of financial position, no warranty of accuracy
or reliability is given, and we accept no responsibility
whatsoever to any person other than our clients for any loss
or damage occasioned by reliance on the information contained
in these statements or for any error or omissions, therein
however caused."

8. The evidence establishes that there was no analysis, compilation or dissection on behalf of anybody associated with Nelson Wheeler. What has occurred is that documents supplied by Global Enterprises have been presented as if they had in fact been prepared by Nelson Wheeler. The initial sentence of the disclaimer which speaks of preparation by Nelson Wheeler disguises and distorts what occurred in the preparation of the documents. The reference to the absence of audit of either the basic records or the statements suggests that there is a distinction between the basic records and the statements which appear in the document. The use of the word "Accordingly" at the commencement of the third sentence suggests a basis for the absence of any opinion as to whether the statements represented a true and fair view of the results of the company or of its financial position.

9. Having regard to the terms of the document, Nelson Wheeler, in its production, adopted the position of representing as their own documents those which had been supplied by Stengold Pty Ltd. This information was totally and uncritically accepted by Nelson Wheeler and promulgated as their own. In my opinion the disclaimer, which gave to the representations a spurious authenticity, was an attempt to evade liability for the known and contemplated consequences of their conduct.

10. After receiving the information supplied by Stengold, Mr Mackman wrote on 26 January 1988 and then flew to Australia from New Zealand where he then resided and had discussions with the fourth and fifth respondents. On 22 February a letter was written to him in New Zealand on behalf of Global Enterprises stating:

"Congratulations on your successful application to become a
Le Guardienne distributor in the Northern Gold Coast area.
Our Mr Stone will be in close contact with you to finalise
your agreement."

11. On 18 February Mr Mackman paid $A.20,000 in part payment of his distributorship to Global Enterprises and received a receipt dated that day. A further payment of $A.65,000 to Global Enterprises was made and on 19 April 1988 he received a receipt for that amount. On his behalf two further sums were paid, the first in the amount of $A.5,000 to an account in the name of Global Enterprises International at Westpac, Brisbane on 27 April 1988; and on 2 May 1988 an amount of $A.10,000 was also paid to the account of Global Enterprises International at Westpac, Brisbane. The total payment on behalf of Mr Mackman was $A.100,000.

12. There is a document dated 14 March 1988 in evidence which Mr Mackman says he executed in New Zealand and forwarded to the Gold Coast. It speaks of an agreement by Global to sell to a company of which Mr Mackman was to be a 50% shareholder. The document refers to a purchase price of product of $100,000. The document itself is not executed by Semstar Pty Ltd ("Semstar"). That company is referred to in the document as "trading as Global Enterprises".

13. Stengold Pty Ltd ("Stengold") at all material times was a company whose registered office was Lot 14, GLE Karp Court, Bundall and whose registered office commenced at that address on 20 July 1987, and whose principal executive officer was William Alan Stone. He and one Yulanta Rower were the directors, the appointments of both of those as directors being from 20 July 1987. From that date Mr Stone was also secretary. That company is now in liquidation, Mr Desmond William Knight having been appointed liquidator on 19 February 1990.

14. So far as Semstar is concerned, the directors from 20 February 1987 are shown to be Mr Stone and Yulante Rower. Mr Stone was Secretary. The registration of the business name "Global Enterprises" shows that Semstar was the person carrying on the business from 1 March 1987. From 1 January 1987 the registered address of the business was Suite 12 Dominion House, 30-38 Dominion Road, Ashmore.

15. The litigation was settled as between the applicant and the fifth respondent, and four of the six persons who are named as sixth respondents. The first respondent, Stengold Pty Ltd is, as I have indicated, in liquidation and took no part in the proceedings. Semstar Pty Ltd is a two dollar company and was not represented before me. The evidence establishes that the fourth respondent, William Alan Stone, died prior to the commencement of the trial. I made orders pursuant to O. 6 r. 15 in respect of a continuation of the litigation. Prior to making those orders and in the absence of a person representing the estate of the deceased person, I made directions the effect of which was that those persons who might reasonably have an interest in the estate were notified of the litigation and of the possibility of my making orders pursuant to O. 6 r. 15, and were given the opportunity of appearing and being heard as to what orders I should make.

16. The matter was settled as regards the sixth respondents, except Christopher Dhu White and Bruce Kenneth Simmons. The sixth respondents had filed a notice of appearance pursuant to O. 9 r. 4 by Messrs McCullough and Robertson on 16 November 1988 in response to the application which was filed on 9 September 1988. By that notice of appearance all of the sixth respondents, including Mr White and Mr Simmons, indicated that they carried on business under the name or style of Nelson Wheeler of Fifth Floor, 33 Elkhorn Avenue, Surfers Paradise and that they appeared. An affidavit filed on 21 November 1990 by Carolyn Heather Williams, a solicitor employed by Messrs. McCullough and Robertson, deposed to the fact that she had unsuccessfully attempted to obtain instructions from each of the six respondents for some time and had written, inter alia, to Mr White and Mr Simmons in terms of the letters respectively ("D") and ("E") and ("J") and ("K") annexed to her affidavit filed on 21 November 1990. I granted leave to Messrs McCullough and Robertson to withdraw as solicitors on behalf of the sixth respondents and when the trial was called on four of the six respondents were represented by Mr. Drysdale of counsel, instructed by Messrs Lang Hemming and Hall. As indicated earlier, I was informed that the litigation as between the applicant and those four of the sixth respondents for whom Mr Drysdale appeared had been compromised.

17. I am satisfied from the evidence and in particular by the evidence of Mr Stephen John O'Keefe that both Mr White and Mr Simmons were aware of the litigation and of the extent it had progressed. They were aware that the trial was to commence on Monday, 11 February and as late as Friday, 8 February, they knew that the four other of the six respondents had arranged legal representation and would be appearing at the trial. I am satisfied they made a knowing and deliberate choice not to be part of that representation. I am satisfied that each of them was aware that the trial was to commence on Monday, 11 February. I am satisfied that Mr White, who purported to be speaking on behalf of Mr Simmons also, told Mr. O'Keefe that they had arranged separate representation and that each of them would be represented when the trial was called on. Notwithstanding those statements neither Mr Simmons nor Mr White appeared personally or by counsel, nor has any explanation for their non appearance at the trial been presented.

18. I am satisfied by the evidence, and in particular by the evidence of Mr Mackman, that the representations which were admittedly made were false. I am satisfied that not only were they incorrect, but there was no reasonable basis for the making of them. I am satisfied that they were made by the first respondent knowing that they were false.

19. The view I have from the entirety of the evidence is that Mr Mackman was a lamb to the slaughter and he is the victim of a clear fraud. I am satisfied that the representations made, inter alia, by Exhibits 18, 19, and 4 were made by the first respondent and that the fourth respondent was, pursuant to s. 75B, knowingly concerned in the contravention by Stengold of the provisions of s. 52 of the Trade Practices Act. As I have indicated, and having regard to s. 51A, the representations as to future conduct or as to future performance had no reasonable basis in fact and were not genuinely entertained by the representor.

20. As to the position of the sixth respondent, I have already indicated, rather tersely, my acceptance of the submissions made concerning the conduct of Nelson Wheeler made by Mr Boulton of counsel who appeared for the applicant. My opinion is reflected in the observations I made in the course of those submissions.

21. Section 6 of the Trade Practices Act extends the operation of s. 52 to natural persons where those representations are made, inter alia, by conduct "which involves the use of postal...services".

22. While I was initially troubled by the question of extra territorial operation in that Exhibit 4 was initially communicated to Mr Mackman by post to New Zealand, in my opinion the sixth respondents are also liable by virtue of s. 75B of the Trade Practices Act. I am satisfied that there was confirmation in Australia of the information from Nelson Wheeler communicated by post to Mr Mackman in New Zealand. The conduct of Nelson Wheeler operated in Australia on the applicant and was a material factor in inducing him to enter into the distributorship agreement. I have had regard to the amended defence of the sixth respondents filed at a time when solicitors were acting for all six of them. In paragraph 2 of the amended defence, the sixth respondents admit the allegations contained in paragraphs 16, 17, and 18 of the amended statement of claim, which paragraphs were in these terms:-

"16. The sixth respondents at all material times carried on the
business of chartered accountants under the name or style, Nelson
Wheeler.
17. On or about the 30 December 1987, the sixth respondents, at
the request of the first, second and third respondents or one
or more of them prepared, under their letterhead, a document
entitled;
"Stengold Pty. Limited
Trading as
Global Enterprises
Le Guardienne Traders
Projected Partnership Profit and Loss
Statement"
18. The sixth respondents, at all material times, knew or ought
to have known that the purpose of the preparation of the said
document was that it should be shown to prospective purchasers
of exclusive rights to market, in designated areas, a certain
car paint protection treatment."

23. The sixth respondents acknowledged that the purpose of the preparation of the document was its production to prospective purchasers.

24. The disclaimer contained in Exhibit 4 has been the subject of detailed analysis, and in particular by two chartered accountants, whose evidence I accept. I accept the evidence of Mr Colson and Mr Wruck as to the criticisms that might properly be made of the disclaimer. It is clear that it was modelled on a suggested disclaimer, but significant words have been omitted. It is, on its face, misleading or deceptive. It purports in its terms to have been prepared from basic records when, in fact, no such basis was its origin. It was the uncritical and wholesale adoption of documents given to it. Any analysis, or digestion, or synthesis of basic data which the terms of the disclaimer might suggest is an illusion. It acknowledges a liability to its clients, but not to other persons. Yet it is admitted that it knew that the only purpose of the preparation of the documents was to show it to other persons.

25. As to the operation of s. 6, I have been referred to the cases Advanced Hair Studio Pty Ltd v. TVW Enterprises Ltd 18 F.C.R. 1, Barton v. Croner Trading Pty Ltd [1984] FCA 195; 3 F.C.R. 95, and Green v. Ford (1985) ATPR at 40603.

26. So far as the basis of liability under s. 75B is concerned, I am satisfied that the sixth respondents knew that the only use of the preparation of those documents was to persuade persons to purchase franchises for the supply of the motor vehicle protection system. As indicated, the figures represented by the document as being the result of Nelson Wheeler's work were not theirs but Stengold's. The view that I have is that the sixth respondents sold their professional reputation and integrity for silver and were wholly uncaring as to the deception implicit in the documents, which were to be used, as they knew, for the purpose of persuading people to purchase. The attempt to disclaim in my view is an ingenuous but unsuccessful attempt to absolve its authors from liability for the dissemination and no doubt inducing quality of the document, when they knew that that was the purpose for which the documents were prepared. In short, the sixth respondents were in this instance professional people who stooped to selling the professional integrity which the community is entitled to accord to a firm of chartered accountants, quite uncaring as to the validity, propriety or basis of the information they were a party to peddling. I have no doubt that the firm of accountants were knowingly concerned in the conduct of the first respondent which contravenes s. 52 of the Trade Practices Act.

27. I am also satisfied that the sixth respondents are liable in negligence, consistent with the principles referred to in Hedley Byrne and Co Ltd v. Heller and Partners Pty Ltd [1963] UKHL 4; (1964) AC 465 and BT Australia Ltd v. Raine and Horne Pty Ltd (1983) 3 NSWLR 221. The obligations of the sixth respondents seem to me to be on all fours with those analysed by Wootten J in BT Australia Ltd v. Raine and Horne Pty Ltd (supra). In that case, the disclaimer clause was in the following terms:-

"This report is for the use only of the party to whom it is
addressed and for no other purpose and no responsibility is
accepted to any third party for the whole part of the contents
of this report."

28. Wootten J expressed himself at p 236 in terms which mutatis mutandis apply in the present case:-

"In the light of this common knowledge shared by BT and Raine
and Horne of the proposed use of the valuation, BT argued that the
second part of the clause must be understood as disclaiming
responsibility to any third party suffering damage by reason of
the third party using the valuation, but not as disclaiming
responsibility for damage resulting to a third party by the very
use of the valuation by BT for which Raine and Horne in the first
part of the clause impliedly accepted responsibility. This use,
to the knowledge of Raine and Horne, was used by BT in discharging
its duties to third parties so that they, rather than BT, would
in the nature of things be the likely sufferers from an incorrect
valuation. In my view this is a reasonable reconciliation of
the two parts of the clause. The wide interpretation of the second
part contended for by Raine and Horne would, in the circumstances,
mean that Raine and Horne was accepting no real responsibility at
all for its valuation, despite the fact that it was providing
the valuation as a matter of contractual obligation in the course
of its business for a negotiated fee, and despite the fact that
the first part of the clause itself contemplated that Raine and
Horne would be responsible for the valuation in so far as it was
used by BT.
The disclaimer clause was unilaterally framed and inserted by
Raine and Horne, and if it was intended to disclaim responsibility
for the consequences of its use for the very purpose for which
it was obtained, it was reasonable to expect Raine and Horne to
say so in clear words. In saying this I am mindful of the comments
of Lord Reid in Hedley Byrne (at 492) where he contrasted
disclaimer clauses in contracts, where it was necessary to exclude
liability for negligence, and the disclaimer in the case before
him, where the question was whether an undertaking to assume a
duty to take care could be inferred. While in the present case
the contractual liability would not extend to third parties, the
obligation to provide the valuation was being undertaken in a
contractual context where responsibility to take care was being
assumed to BT, and where, in my view, it would be reasonable to
infer that the responsibility so assumed would extend in tort
beyond the other party to the contract to the third plaintiffs,
in the discharge of duties towards which BT proposed to use the
valuation."

29. In those circumstances and based on the entirety of the evidence, I am satisfied that Mr Simmons and Mr White are liable to the applicant, pursuant to s. 75B of the Trade Practices Act in that the firm of which they were partners was knowingly concerned in the contravention of s. 52 of the Trade Practices Act by Stengold and they are liable to the applicant in negligence in respect of the breach by Nelson Wheeler of its obligations to the applicant, who was a party of sufficient proximity and was one of a class which Nelson Wheeler must necessarily have had in contemplation.

30. In the period of approximately a month during which Mr Mackman was concerned with the operation of the business the sales were of the order of four or five full treatments for which less than the full price could be achieved. There is no evidence to justify any basis for the projections of the operation of the business. There is no evidence led by any party on which a reasonable basis for the projections contained in Exhibits 18, 19 and 4 could reasonably be entertained.

31. On the whole of the evidence then, I make the following orders:-

32. I declare that the conduct of Stengold Pty Ltd was conduct in trade of commerce which was misleading or deceptive or likely to mislead or deceive in contravention of s. 52 of the Trade Practices Act 1974. I declare that the fourth respondents and the sixth respondents were persons knowingly involved in the contravention of s. 52 by Stengold Pty Ltd and declare that the applicant has suffered loss or damage as a result of the conduct of Stengold Pty Ltd, William Alan Stone and the sixth respondents.

33. I declare that the agreement entered into between the applicant and the first respondent in about February or March 1988 is void ab initio. I direct that the fourth respondent pay to the applicant the sum of $100,000, together with interest calculated at the rate of 15 per cent per annum from 2 May 1988 until today, making it a rounded-off total of $141,300.

34. I give judgment for the applicant against the fourth respondent for $141,300. I order the fourth respondent to pay the sum of $141,300 to the applicant. I note, pursuant to O. 6 r. 15(2), that that judgment in this proceeding is binding on the estate of the deceased person to the same extent that the estate would have been bound had a personal representative of the deceased person been a party to the proceeding.

35. I give judgment for the applicant against Christopher Dhu White and against Bruce Kenneth Simmons in the sum of $100,000 together with interest at 15 per cent from 2 May 1988 until today, being a rounded-off total of $141,300. I order Christopher Dhu White and Bruce Kenneth Simmons to pay the sum of $141,300 to the applicant.

36. I order that the costs of the applicant, including reserved costs if any, be paid by the fourth respondent and by Christopher Dhu White and by Bruce Kenneth Simmons, to be taxed if not agreed.

37. I give liberty to apply within 48 hours in respect of any arithmetical error.

38. No doubt any recovery by the applicant will take into account any payment under the terms of settlement that may have happened and any agreement as to costs.