Liberty USA Pty Ltd v Telstra Corp Ltd & Anor [1998] FCA 1189 (22 September 1998)

Last Updated: 28 September 1998

FEDERAL COURT OF AUSTRALIA

CONTRACT - Whether contractual right of first refusal over future stocks of phones - Whether intention to create legal relations - Terms - Whether employee of respondent had apparent or ostensible authority to commit respondent to right of first refusal - Whether breach of contract - Whether mitigation of loss

TRADE PRACTICES - Whether letter to applicant constituted a representation of first refusal - Whether misleading and deceptive conduct - Whether alleged representation was authorised by the respondent - Calculation of damages

UNCONSCIONABILITY - Estoppel - Whether failure to honour the alleged right of first refusal constituted unconscionable conduct

Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480

Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332

Trade Practices Act 1974 s 51A, 52

LIBERTY USA PTY LTD v TELSTRA CORPORATION Ltd and Anor

No VG 166 of 1994

JUDGE: NORTH J

DATE: 22 SEPTEMBER 1998

PLACE: MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 166 of 1994

BETWEEN	LIBERTY USA PTY LTD (ACN 057 891 224) Applicant
AND:	TELSTRA CORPORATION LIMITED (ACN 051 776 556) First Respondent TELECOM TECHNOLOGIES PTY LTD (ACN 006 841 345) Second Respondent
JUDGE(S):	NORTH J
DATE OF ORDER:	22/09/98
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The application is dismissed.

2. Judgment for the first respondent in the sum of $51,074.

3. The applicant is restrained from selling any remaining TF200 phones purchased from Telstra to purchasers within Australia.

4. Costs reserved to a date to be fixed.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 166 of 1994

BETWEEN	LIBERTY USA PTY LTD (ACN 057 891 224) Applicant
AND:	TELSTRA CORPORATION LIMITED (ACN 051 776 556) First Respondent TELECOM TECHNOLOGIES PTY LTD (ACN 006 841 345) Second Respondent

JUDGE(S):	NORTH J
DATE:	22/09/98
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

The applicant, Liberty USA Pty Ltd (Liberty), carried on business dealing in secondhand telecommunications equipment. In 1991, it began to develop a market selling secondhand phones for export, especially to Poland. It was a small business, operated by Mr and Mrs Tuczynski. The first respondent, Telstra Corporation Ltd (Telstra), was the source of supply of the phones. Telstra received about 200,000 phones returned by customers each year because the phones were faulty or unusable for some reason. In order to minimise the storage cost for the phones, Telstra sold those phones to dealers, such as Liberty, for export resale. Most of the returned phones were model TF200 touchfones. Telstra commenced supplying the phones to Liberty in June 1991. Three substantial purchases were made during 1991, involving over 200,000 phones. In a letter dated 27 February 1992 to Liberty, Telstra stated:

"Telecom also gives you first refusal on any other stocks of recovered TF200 telephones that will be available in Telecom stores after the agreed quantity of 200,000 is meet [sic]." Ab601

The central question in this case is the legal status of this communication.

Liberty put its claim on three bases. First, it alleged that, by the letter, Telstra gave Liberty a contractual right of first refusal over future stocks of phones. In breach of the right of first refusal, Telstra sold 451,133 such phones to others between 27 February 1992 and 30 July 1994. Liberty claimed loss of profits of $1,105,275.80 on the resale of those phones. Second, Liberty claimed that, by the letter, Telstra represented that Liberty had the right of first refusal and that the making of the representation was misleading and deceptive conduct, in breach of s 52 of the Trade Practices Act. Third, Liberty claimed that, in failing to honour the right of first refusal, Telstra engaged in unconscionable conduct towards Liberty.

One of Telstra's defences to at least the contract and misrepresentation claims was that any contract or representation was made without the authority of Telstra. It is convenient to deal with this argument at the outset.

AUTHORITY TO BIND TELSTRA

The sale of recovered phones was handled by the materials sourcing arm of the Business Supply Branch of Telstra. The manager of the materials sourcing arm was Mr Ray Shea. One of his eighteen staff was an Acting Administrative Officer 5, Mr John Burke. The alleged right of first refusal resulted from a request made by Mr Tuczynski to Mr Burke. The response came from Mr Burke. Thus, it is the authority of Mr Burke to bind Telstra which must be examined.

The evidence established that Mr Burke did not have actual authority to commit Telstra to the right of first refusal. Telstra would be liable, however, if it held out Mr Burke as having the necessary authority. A principal who makes it appear that he has conferred on his agent authority to make a particular commitment is estopped from disputing the transaction as against a person who has dealt with the agent in the bona fide belief that authority had actually been given: Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480. The question then is whether Telstra clothed Mr Burke with apparent or ostensible authority to commit Telstra to the right of first refusal. The question must be answered against the background of the circumstances in which the first refusal letter was provided.

The circumstances surrounding the provision of the first refusal letter

The full text of the letter is as follows:

"As per our recent conversation the following information details the quantity of TF200 telephones that you have received to date and any quantities outstanding to make up the agreed total quantities.

DEAL 1

Quantity Purchased Quantity Supplied State of Origin

4,400 4,923 (069361) Wa (Part of 20,074)

Total 4,923

DEAL 2

Quantity Purchased Quantity Supplied State of Origin

20,000 4,550 (767240) Vic

350 (069256) Vic

3,500 (069261) Vic

3,500 (069265) Vic

3,500 (069266) Vic

3,500 (069267) Vic

3,500 (069268) Vic

2,500 (069269) Vic

7,090 (069352) Tas

840 (069356) Vic

420 (069360) Vic

420 (069373) Vic

420 (069380) Vic

Total 34,090

DEAL 3

Quantity Purchased Quantity Supplied State of Origin

150,000 (Initial) 15,151 (069361) Wa (Part of 20,074)

200,000 (Revised) 32,000 (069353) Nsw

42,490 (069354) Qld

48,890 (069355) Nsw

27,514 (069368) Nsw

12,612 (069293) Sa (via Vic)

840 (069383) Vic

12,238 (069384) Nsw

6,272 (069386) Qld

Total 198,007

Quantity outstanding = 1,993

Telecom also gives you first refusal on any other stocks of recovered TF200 telephones that will be available in Telecom stores after the agreed quantity of 200,000 is meet.

If you have any further enquires please contact this office."

Early in February 1992, Mr Hay and Mr McDonald, who had been involved with Mr Tuczynski as joint venturers in purchasing TF200 phones from Telstra in 1991, asked Mr Tuczynski to arrange for Telstra to set out the exact number of phones delivered pursuant to the transactions in which they were involved. Mr Tuczynski asked Mr Burke to provide those details. On about 6 February 1992, Mr Burke started to work on the letter. On about 24 February, Mr Burke told Mr Tuczynski that he was leaving Telstra on 28 February 1992. On 27 February, Mr Tuczynski came into Telstra's office to make a payment for some phones. Mr Burke was trying to clean up his files. He was in a hurry to get things done. In evidence, he recalled that, on 27 February, Mr Tuczynski asked for "some notification mechanism so that I have the opportunity to buy TF200 telephones when they come upT250". In a letter dated 5 August 1993, setting out his recollection of the events, he said it was "a few days before AB926" 28 February 1997 that Mr Tuczynski made the request.

Mr Tuczynski said that he first asked Mr Burke for a letter to secure future stocks of TF200 phones on or about 6 February 1992. However, Mr Tuczynski's recollection of raising the issue before he knew of Mr Burke's departure relied upon a letter dated 6 February 1992 which contained reference to the first refusal.

I accept Mr Burke's evidence that this sentence containing reference to the first refusal was not included until about 27 February 1992. The date 6 February 1992 on the letter, upon which Mr Tuczynski relied, was the date when Mr Burke started to draft the letter setting out the stock purchased by Liberty, McDonald and Hay. The first refusal sentence did not appear in the draft but was added on about 27 February. Although the draft was typed on a computer, the date on the draft had to be changed manually and Mr Burke overlooked doing so when he added the first refusal sentence on about 27 February 1992. Consequently, the wrong date appeared on the first version of the final draft of the letter. Thus, the date on the letter was no basis for Mr Tuczynski to found his memory of the timing of the request in respect of future stocks of phones.

I am satisfied, from the evidence as a whole, that the request from Mr Tuczynski was made no earlier than a few days before Mr Burke's departure and at a time when Mr Tuczynski knew that Mr Burke was leaving the employment of Telstra.

APPARENT OR OSTENSIBLE AUTHORITY

The course of dealings between Mr Tuczynski and Mr Burke

In an affidavit sworn by Mr Burke, he said, in relation to the respective roles of himself and Mr Shea:

"Shea put the deals together with John Tuczynski and I attended to the paperwork." AB155

This is an accurate description, as revealed by the business dealings between Liberty and Telstra between June 1991 and February 1992.

In June and July 1991, Liberty purchased approximately 54,000 push button 800 series phones from Telstra in a number of transactions. Mr Tuczynski negotiated the transactions with Mr Shea, arranged settlement of the transactions with Mr Shea, and met Mr Shea to make various payments. In relation to one transaction, Mr Tuczynski introduced Mr Hay, an investor in respect of one of the transactions, to Mr Shea. Mr Hay then made payment directly to Mr Shea for some phones. Mr Burke attended to several practical enquiries from Mr Tuczynski, such as making available samples of the 800 series phones.

In the latter half of July, Mr Burke rang Mr Tuczynski expressly on behalf of Mr Shea to enquire whether Liberty was interested in purchasing telexes and TF200 phones. On 22 July, Mr Shea rang and arranged a meeting with Mr Tuczynski, which occurred on 26 July 1991. At the meeting, Mr Shea explained that Telstra expected to recover over one million TF200 phones over several years and he asked whether Liberty was interested in buying such phones, because Telstra wanted to avoid the increasing cost of storage. Mr Shea explained that the phones would be sold as is, out of warranty and for export markets only. They discussed price. Mr Shea asked for $5 per phone. Mr Tuczynski offered $2 per phone. In the end, Mr Tuczynski agreed to buy 4,000 phones at $2 per phone. Mr Shea agreed that these phones would be in working order. A few days later, Mr Burke arranged for Mr Tuczynski to inspect some of the TF200 phones and then attended the inspection with Mr Tuczynski.

In early August, Mr Burke rang to arrange a meeting, which occurred with Mr Shea and Mr Tuczynski on 6 August. Mr Burke was present. Mr Shea followed up trying to interest Mr Tuczynski in large quantities of TF200 phones. Mr Shea was also trying to interest Mr Tuczynski in purchasing telexes. At a meeting attended by Mr Shea and Mr Tuczynski, but not Mr Burke, on 22 August 1991, Mr Tuczynski indicated that he was not interested in purchasing telexes then.

While Mr and Mrs Tuczynski were on holidays in late September, they met Mr and Mrs Shea at the Red Ox restaurant in Kyneton for dinner, for further discussions about the sale of TF200 phones. Mr Shea asked about Liberty's overseas purchasers and its capacity to take large numbers of phones, and again explained Telstra's storage problem.

In early October, Mr Tuczynski met Mr Shea and Mr Burke and agreed to buy 20,000 TF200 phones in working condition for $40,000. Mr Tuczynski gave Mr Shea a cheque for that amount. Mr Tuczynski told Mr Shea that the phones were to be refurbished in Australia for the overseas market. Later in October, Mr Burke asked Mr Tuczynski whether Liberty was interested in tendering for cleaning TF200 phones for Telstra. Mr Burke gave Mr Tuczynski a contact name in Telstra in relation to the test, wipe and package tender, namely, Kevin Lacey. Although Mr Burke had handled other practical arrangements relating to the tender, when it came to discussing whether an agreement would be made, Mr Tuczynski asked Mr Burke to arrange a meeting with Mr Shea and Mr Lacey. At the end of October, Mr Tuczynski was told by Mr Burke that the decision on the tender was to be made by Mr Shea and Mr Lacey.

There was further discussion about the purchase of TF200 phones by Liberty in early November at a lunch meeting attended by Mr Shea, Mr Burke and Mr Tuczynski. Mr Tuczynski agreed to buy 150,000 TF200 phones for $120,000 on an as is, out of warranty basis. The discussion about the quantities and terms was between Mr Shea and Mr Tuczynski. The phones sold amounted to all the then available stocks of such phones. Throughout the balance of November, Mr Burke was in touch with Mr Tuczynski about the practical matters relating to the transaction, such as delivery of phones and payment for them.

During December, the same pattern of conduct between Mr Shea and Mr Burke continued. Mr Burke made phone calls to Mr Tuczynski to arrange for stock deliveries and other such administrative matters. Mr Shea was involved in agreeing to variations to the terms of payment for stock.

In early January 1992, Mr Tuczynski complained to Mr Burke about the failure rate of the working phones, which exceeded the agreed 10%. Mr Burke's response was that the matter had to be taken up with Mr Shea.

Letters of 28 and 29 November 1991

At the end of November, an exchange of letters occurred which is significant. The TF200 phones bore the Telecom trademark and had stamped into the plastic body the words "This phone remains the property of Telecom". As a result, potential purchasers of the phones raised questions as to the right of Liberty to sell the phones to them. Mr Tuczynski requested Mr Burke to arrange for a letter from Telstra confirming Liberty's right to sell the phones. Mr Tuczynski forwarded a draft and, in response, on 28 November 1991, Mr Burke provided the following letter AB 551to Mr Tuczynski, which largely followed the form of the draft:

"This letter confirms that your company has been selected by Telecom Australia (Business Services Division) to form part of an associate group of companies (detailed above) which has exclusively purchased all `Out of Warranty' TF200 Telephones from Telecom on an `as is' basis for the sole purpose of export sales only.

The associate group of companies has agreed to accept the terms and conditions stated by Telecom relating to the sale of these Telephones.

Your particular attention is drawn to the stipulation that none of these Telephones shall be sold by you or your associated agents in Australia and documentary evidence of each shipment of telephones is required by Telecom.

If you have any further enquiries please contact this office."

Shortly afterwards, Mr Burke rang Mr Tuczynski and asked him to destroy the letter, as he would be sending another version which had been checked with Telstra's solicitors. He told Mr Tuczynski that Mr Shea was unhappy with the first version. On the next day, Mr Burke sent Mr Tuczynski a facsimile with an altered version of the letter and with a request that Mr Tuczynski disregard the earlier version. The replacement letter incorporated two changes. The words which I have emphasised were added in the first paragraph:

"This letter confirms that your company has been selected by Telecom Australia (Business Services Division) to form part of an associate group of companies (detailed above) which has exclusively purchased all of our current stocks of `Out of Warranty' TF200 Telephones on an `as is' basis for the sole purpose of export sales only." AB 553

Further, a new paragraph was added after the first paragraph, as follows:

"This arrangement does not cover any future recoveries of `Out of Warranty' TF200 Telephones from Telecom."

When he received the altered version, Mr Tuczynski appreciated the significance of the changes to the original version of the letter. He knew that Mr Shea was unhappy about the original version. In evidence, Mr Tuczynski rejected the proposition that he concluded from this incident that Mr Burke did not have authority to commit Telstra to future sales of TF200 phones. I do not accept this aspect of Mr Tuczynski's evidence. In much of his evidence, Mr Tuczynski reconstructed events to suit his case. I do not suggest that this was usually done deliberately. Mostly, it reflected such a strong commitment to succeeding in the case that Mr Tuczynski was unable to see or recall the facts other than in a light which assisted his case. I find, on the balance of probabilities, that Mr Tuczynski concluded, when he received the amended version of the letter, that Mr Burke was not permitted to commit Telstra to future sales of TF200 phones.

Conclusion

In my view, Telstra did not hold out Mr Burke as having authority to commit Telstra to a right of first refusal. In the entire course of dealings between Liberty and Telstra, Mr Burke performed minor administrative functions. He did not make the agreements for single transactions, let alone for an ongoing commitment which would have lasted for at least five years and involved at least one million phones. His function was to arrange deliveries, set up appointments, provide samples and do similar administrative tasks. The circumstances surrounding the change to the letter of 28 November 1991 showed Mr Tuczynski that Mr Burke had no authority to commit Telstra to future sales of TF200 phones. Further, the request to have the 27 February 1992 letter produced the day before Mr Burke left Telstra's employment points to an attempt by Mr Tuczynski to take advantage of the contact with Mr Burke, rather than to rely upon any authority of Mr Burke conferred by Telstra. The circumstances satisfy me that Mr Burke did not have apparent authority to commit Telstra to a right of first refusal. Further, the circumstances satisfy me that Mr Tuczynski, acting on behalf of Liberty, was aware that Mr Burke did not have such authority.

A question which is related to the authority of Mr Burke is the question of what Mr Burke and Mr Tuczynski intended by the request and response in February 1992. It is convenient, at this point, to consider one defence of Telstra against the contract claim, namely, that the parties did not intend to create legal relations by the letter of 27 February 1992 and its surrounding circumstances.

INTENTION TO CREATE LEGAL RELATIONS

Between June 1991 and February 1992, Mr Tuczynski and Mr Burke had regular contact with each other concerning the purchase of phones by Liberty. Mr Burke was helpful to Mr Tuczynski in locating spare parts for phones purchased by Liberty. Towards the end of 1991, Mr Burke's stepson was engaged for a few months by Liberty and its joint venturers in a contract for cleaning phones. Mrs Burke helped her son a little in this enterprise. There was a generally cooperative relationship between Mr Tuczynski and Mr Burke. Then Mr Burke told Mr Tuczynski he was about to leave Telstra. Mr Tuczynski knew that Mr Shea had rejected the 28 November 1991 form of letter, which suggested that Telstra might be committed to sell TF200 phones to Liberty in future. Mr Burke gave evidence about Mr Tuczynski's request for the right of first refusal, as follows AB 245:

"And he requested that Liberty be given, first right of refusal, on future recoveries of TF200 telephones?--- That is right, but it wasn't actually in those terms. His actual words, the first right of refusal, he requested a way of actually getting hold of, or being let known what stock Telstra had available before we actually sold it to anybody else.

So he did not use the expression, first right of refusal?--- No.

He said he wanted something that allowed him to be put on notice?--- Yes.

...

And you do not AB 269- I withdraw that. Is it not possible that Mr Tuczynski came up with a request in terms of first refusal, first right of refusal, some wording to that effect?--- No, not to my recollection. He had asked me to see what further future stocks of touch phones he could obtain and what sort of mechanism he could be contacted regarding them.

Well, are you sure he did not use the expression, `first refusal'?--- I am sure."

This evidence suggests that Mr Tuczynski asked, in effect, to be put on Telstra's mailing list for the purchase of future stocks of TF200 phones. Such a request is readily understandable in the circumstances. It was the sort of administrative assistance which Mr Tuczynski had become accustomed to seek from Mr Burke. As Mr Burke had been helpful in the past and was about to leave, Mr Tuczynski would have been concerned to ensure that the person taking over from Mr Burke would notify him of the availability of future stocks.

Mr Tuczynski said that he received the draft letter containing the first refusal sentence on 6 February 1992 and, on 26 February 1992, asked Mr Burke to update the letter to include further stock delivered since 6 February 1992. As I have earlier discussed, I do not accept that the draft letter bearing the date 6 February 1992 was produced on that date, rather I have found that it was produced on or about 27 February 1992. I find that Mr Tuczynski asked Mr Burke, on or about 27 February, for a letter agreeing that Liberty would be notified of the availability of future stocks of TF200 phones.

Mr Burke gave evidence that, after Mr Tuczynski made the request for a notification procedure, he, Mr Burke, spoke to Mr Shea about the request. He recalled that somebody else was in Mr Shea's office, but he could not recall the identity of the person. Mr Burke said that the phrase "first refusal" was suggested by Mr Shea, not by Mr Tuczynski or by Mr Burke. He recalled Mr Shea saying that Mr Tuczynski was the only person buying the phones and paying money up front, and could not see any reason why he should not have a right of first refusal. Mr Burke said that Mr Shea verbally approved the 27 February 1992 letter.

Mr Shea, however, denied knowledge of the 27 February 1992 letter, denied being involved in drafting it, and did not recall discussing with Mr Burke the granting of a right of first refusal to Liberty. I was impressed by the way Mr Shea gave evidence on this issue. He conceded that he could not be absolutely certain that the letter did not pass across his desk, but he was certain, from his own recollection, that he had no knowledge of the letter. The following exchange with the Court captures his approach:

"Yes. You see, what I have to determine is the contractual status, if any, of T406this so-called right of first refusal. And Mr Tuczynski's evidence is absolutely definite that he had one which was negotiated by or through Mr Burke with your approval and your evidence, as I understand it, on the other hand is that no such right exists so far as you can recall. And I wonder if the explanation for the inconsistency is that the letter passed your desk without you giving much attention to its passage across your desk; is that a likely or possible explanation?--- Well unfortunately, your Honour, I can't say that that wouldn't be the case.

No?--- That period of time in Telstra when John Burke, at that period of time was leaving, he was leaving with four people altogether. That's four out of our sort of staff of 18. Those - that period was a fairly hectic difficult time, but I believe if I had of seen that letter with those - that wording in it, I would have been alerted and would not have allowed it to proceed. And I'm certain, in my own mind, that I had no knowledge of such a letter, a right of refusal."

Mr Shea started work with the PostMaster General's Department (the predecessor of Telstra) in January 1968. He remained in the Stores Department for his entire career of 24 years. He spent 20 years in the area of contract preparation, including negotiating with tenderers, preparing tender documents, analysing tenders, seeking approval of delegated authorities, accepting tenders and preparing supply contracts. There was a specific branch of the Commercial Division which dealt with the preparation of contracts. That was not a role fulfilled by the Material Sourcing Branch. With this background, it is improbable that Mr Shea would have approved a right of first refusal involving all TF200 stock, amounting to over one million phones, over a period of more than five years. First, he knew that the power to enter into contracts on behalf of Telstra was governed by written delegations, and that he did not have authority to enter into such a contract under those delegations. Second, the form of the suggested agreement did not provide for a precise description of the subject matter of the transaction, the price at which the right was to be exercised, or the duration of the agreement. These were all matters that Mr Shea, from his experience, expected to be set out in detail in a contract with Telstra. Further, it is unlikely that Mr Shea would have accepted an agreement of this nature without an express restriction which limited resale to the export market. Third, the grant of exclusivity was inconsistent with the approach which Telstra took to recovered phones in late 1991 and 1992. Mr Shea gave the following evidence about the approach:

"And why did you suggest the inclusion of the second paragraph in the letter T396of 29 November?--- Because we were in the - we were selling the telephones on the basis of best offer at the time for the telephones that were available at the time. And we weren't contemplating a long term contractual commitment for supply of the telephones.

Yes. And to your knowledge how long did that attitude on behalf of Telecom persist after this letter of 29 November?--- It persisted to my knowledge to the end of 1992. Through 1992 there were plans and strategies discussed and contemplated to enable Telstra to maximise the return from its recovered Touchfone 200s in-house.

Can you tell his Honour what those strategies were?--- The strategy was that we were aware that we were really wasting a good resource in the nature of a second-hand telephone. Most of Telstra's - Telecom at the time's - customers were rental customers. There was no obligation by us, or by Telecom at the time, to supply brand new telephones to rental customers. So we were aware that these several hundred thousand telephones coming back through the system as recovered rentals or faulty telephones could be refurbished - or test, wipe and pack as we called them - at a low cost, put back in the stores, and save Telecom considerable expense in purchasing new telephones to service their rental customer base.

Can you remember at what time Telstra - Telecom was looking at proposals to refurbish or test, wipe and pack TF200s itself?--- The strategy itself was well known through '90, '91, '92. But it is not always easy within an organisation like Telecom to implement a proposal that you know has a significant cost benefit, because of the reluctance of people in the field in a large organisation like Telecom to respond to direction from National Headquarters. We ultimately went out to tender for test, wipe and pack by various companies. I'm not too sure of it exactly, but I think that was during 1992. I do know that we did a trial of some significant quantities with the Bathurst Prison; we supplied them with recovered Touchfones. They did the test, wipe and pack, and we put them back into store, and we implemented procedures in the field where those telephones were to be used for rental installations.

Can you remember when the trials with the Bathurst Prison were occurring?--- I can't remember it, but I know it's mentioned in the affidavits in here.

Are you able to tell his Honour what the status of these proposals for refurbishment or test, wipe and pack activities to be undertaken by Telecom itself was in about February of 1992?--- They were certainly current at that time, because it was subsequent to that date that our trials were underway."

Mr Burke's evidence concerning the alleged approval by Mr Shea was sketchy. On the few occasions when Mr Burke gave evidence of specific incidents or conversations, his recollection was limited or inaccurate. He did not recall who was present with Mr Shea when the right of first refusal was discussed. He said that Mr Shea commented "Mr Tuczynski was the only one T274who was purchasing the phones and paying money for them up front and he could not see any reason why he should not have a first right of refusal". In fact, Liberty had agreed to pay for the phones up front, but the agreement had been varied to allow Liberty to pay in instalments. Mr Shea was well aware of the variation because he concluded the agreement to vary with Mr Tuczynski. It is therefore unlikely that Mr Shea made the comment in the way recalled by Mr Burke.

I find, on the balance of probabilities, that Mr Tuczynski asked Mr Burke on or about Mr Burke's last day of work at Telstra, to provide a letter ensuring that Liberty would be notified of the availability of future stocks of TF200 phones for purchase. Mr Burke provided the letter dated 27 February 1992 in response. I further find, on the balance of probabilities, that the form of the letter was not seen, or approved, by Mr Shea. Mr Burke understood that he was being asked by Mr Tuczynski to provide a process of notification. To provide for such a process was within his authority. He provided the letter for that purpose. I accept that the verbiage "first refusal" was not his expression. It is probable that it arose from a discussion with Mr Shea. However, the words were not intended by Mr Burke to confer any legal right on Liberty. In my view, the letter and its context show that neither Mr Tuczynski nor Mr Burke intended the letter to confer on Liberty a legal right in the nature of an option to purchase TF200 phones. Rather, they both intended to establish an arrangement whereby Liberty would be notified of the availability of phones after Mr Burke, Mr Tuczynski's administrative contact at Telstra, left the employment of Telstra the next day.

The determination that the alleged agreement and representation were not authorised by Telstra is an answer to Liberty's contract claim and claim under the Trade Practices Act. The determination that Liberty and Telstra did not intend to create an enforceable obligation of first refusal is a further answer to Liberty's contract claim. Having made these determinations, it is not necessary to determine the remaining defences raised by Telstra, including the argument that the alleged agreement failed for lack of consideration or certainty, or the argument that the right of first refusal was granted to a joint venture including Liberty and the right lapsed when the joint venture was dissolved in October 1992. However, in the event that these determinations are wrong, it is desirable to consider several further issues based on an assumption that there was an agreement or a representation as alleged. On this basis, I will determine whether the number of phones claimed by Liberty was the quantity which would have fallen within the right or representation of first refusal (this issue will be considered under the heading "The relevant quantity of phones"), whether Telstra offered any of such phones to Liberty or whether Liberty had an opportunity to purchase the phones from others (these issues will be considered under the heading "Breach and Mitigation"), whether any failure by Telstra to offer the phones to Liberty caused the loss which is claimed (this issue will be considered under the heading "Causation"), and whether Liberty has established that it suffered any loss (this issue will be considered under the heading "Loss").

THE RELEVANT QUANTITY OF PHONES

Liberty claimed that 451,133 TF200 phones sold by Telstra between 27 February 1992 and 30 July 1994 were recovered TF200 phones which were the subject of the alleged right or representation of first refusal (the first refusal). Telstra contended that the sales records relied upon by Liberty showed that there were two categories of phones sold in the transactions, namely, recovered phones and scrap. Telstra argued that only the former were subject to the first refusal. If this were so, Liberty's claim would be reduced from 451,133 phones to 197,561 phones.

Liberty accepted the evidence of Mr Shea and Mr Warren McAleese, the Regional Manager Southern Finance Operations and Systems of Telstra, that the phones which were the subject of the first refusal were phones, whether working or not, which were a complete unit. That is to say, such phones needed to have a base unit and a handset. Liberty contended that the sales recorded as sales of scrap were sales of complete phones.

The sales records showed that Telstra sold scrap phones on a weight basis, while it sold the recovered phones on a unit basis. Mr McAleese said that scrap sales included bits of phones which were the byproduct of Telstra's refurbishment programmes. The parts of phones discarded in the process of refurbishing phones were sold as scrap. Scrap would not, he said, usually be recognisable as phone units. Scrap was sold on a weight rather than a unit basis because purchasers were seeking to extract metal or plastics or to put the materials through recycling processes. Mr McAleese and Mr Shea said that scrap phones included some units, for instance, units which had been left out in the rain and weather and were of no reuse value at all. I find that the phones sold by Telstra as scrap were nearly all bits and pieces of phones and not complete units. When complete units were sold as scrap they were of no reuse value at all. In my view, the sales of scrap were not part of the subject matter of the first refusal. Consequently, Liberty's claim is limited to the loss of profit on a maximum of 197,561 phones.

BREACH AND MITIGATION - THE EVENTS OF MAY AND JUNE 1993

Mr Shea left the employment of Telstra in late 1992 because his position became redundant. The sale of recovered telecommunications equipment was taken over by Telecom Technologies Pty Ltd (TT), the second respondent, a subsidiary of Telstra. Liberty no longer seeks any relief against TT. Mr Shea's termination became effective on 8 January 1993. Shortly afterwards, he commenced business as a broker of secondhand telecommunications equipment. He purchased the equipment from Telstra and resold to purchasers whom he located. He told Mr Tuczynski in mid January that he had commenced the business, and discussed purchasing Mr Tuczynski's then stock of TF200 phones.

On 10 February 1993, he rang Mr Tuczynski and told him that he would soon be advertising the sale of 50,000 as recovered TF200 ex Telstra phones. Mr Tuczynski said to Mr Shea that his only concern was that the tender might jeopardise his attempts to sell his own stock of 55,000 phones. On 15 February 1993, Mr Shea gave Mr Tuczynski an invitation to tender for the 50,000 phones, plus 8,000 tested working and cleaned phones. The invitation to tender required a response by 1 March 1993. On 22 February 1993, Mr Tuczynski wrote to TT asserting Liberty's right to purchase all recovered TF200 phones. TT replied by letter dated 3 March 1993, denying the agreement, asserting that Mr Burke did not have authority to enter into such an agreement, and suggesting that Mr Tuczynski contact Mr Shea for supplies of recovered TF200 phones. Mr Shea's invitation to tender was not particularly successful. He ultimately sold 30,000 phones at 40cents per phone. Liberty did not tender for the purchase of these phones.

On 21 May 1993, Mr Tuczynski received a fax from Mr Shea, inviting offers for the purchase of 149,453 as recovered TF200 phones by 28 May 1993. The next day, Mr Tuczynski went to see his solicitor. As a result, his solicitor wrote to TT, again insisting that TT honour the right of first refusal. At this time, Mr McAleese was responsible for managing the transfer of some businesses from Telstra to TT, including the business of selling recovered telecommunications equipment. In this capacity, he was asked by TT to sort out the issues which Mr Tuczynski had raised by his own letter and his solicitor's letter to TT asserting the right of first refusal. Mr McAleese examined some records of Telecom. He noticed reference to an outstanding debt of $22,000 owed by Liberty to Telstra in respect of a transaction which occurred in about the middle of 1992. Mr Tuczynski rang Mr McAleese and arranged to meet him on 3 June 1993. There is a conflict in evidence between Mr McAleese and Mr Tuczynski concerning what occurred at that meeting.

Mr McAleese gave evidence that, at the end of the meeting, he told Mr Tuczynski and his wife, who also attended the meeting, that although he had an offer for approximately 149,000 phones, he was prepared to sell all or some of them to Liberty. He asked Mr Tuczynski to make an offer. Mrs Tuczynski responded by suggesting that Telstra should give the phones to them without charge, as a gesture of goodwill for what they had been put through. Mr McAleese said he could not do that, but would offer Liberty the opportunity to buy the phones for a suitable price. Mrs Tuczynski then offered $12,000 for the phones. Mr McAleese rejected this offer. He said that he would sell the phones to Liberty for the same price as the last transaction between Liberty and Telstra, namely, $1 per phone, or at least at a price which matched the offer he already had. Mr and Mrs Tuczynski pressed him to nominate the price. Mr McAleese said words to the effect that the offer would have to be in the vicinity of $100,000. Mr Tuczynski then told Mr McAleese that he would have to speak to his Polish associates who were due in Australia soon, and wanted to give further consideration to the purchase. He said he would advise Mr McAleese. Mr McAleese agreed to give Liberty the chance to further consider buying the phones, provided that Mr Tuczynski advised Mr McAleese by 7 June of the decision. When Mr McAleese had not heard from Mr Tuczynski on 7 June, Mr McAleese rang Mr Tuczynski and asked if he was able to make an offer for the phones. At first Mr Tuczynski did not give a direct answer. Mr McAleese continued to offer the phones but stipulated that Mr Tuczynski would have to provide a bank cheque for the purchase price. Mr Tuczynski then said he could not buy the phones. Mr McAleese replied that he would sell them to Mr Shea.

In his witness statement, Mr Tuczynski stated that he told Mr McAleese at the meeting that he wanted the phones at the price of 50cents agreed as part of the first refusal agreement. He said that Mr McAleese told him to leave it with Mr McAleese, who would make a few calls and get back to Mr Tuczynski. On 7 June, Mr McAleese rang Mr Tuczynski and said that he was to come in by the end of the day with a bank cheque for $22,000, being the money outstanding from Liberty to Telstra. Mr Tuczynski asked whether Mr McAleese had the phones. Mr McAleese said he did, but they were sold.

There is no reference in the witness statement to any discussions about Mr Tuczynski consulting with others about the possible purchase, no reference to the need for a bid price of $1 per phone, and no reference to any mention by Mr McAleese that the bid would need to be about $100,000. Each of these matters was referred to in Mr McAleese's witness statement. Mr McAleese's evidence was put to Mr Tuczynski in cross-examination in the following passage:

"Well, let me put this to you clearly because there is a conflict in your evidence with Mr McAleese here. He said that - T215

At the meeting of 3 June, after further negotiations, the Tuczynskis pressed me to nominate a price. I said words to the effect that their offer had to be in the vicinity of $100,000. Mr Tuczynski said to me he would need to speak with his Polish associates who were due in Australia shortly and he wanted to give further consideration to the purchase.

?--- That's correct.

Well, I read a number of sentences there. Do you agree with all of it?--- Not entirely with all of them. I said I was - - -

What do you disagree with?--- I said I would go away and have talks with my investors.

And Mr McAleese indicated to you the likely bid price that you would need to be around to be successful, did he not?--- And he also suggested to me he would make a couple of phone calls and get back to me.

... he also suggested to you the likely bid price you would need to be at to be successful, did he not?--- He said a dollar, yes.

...

You have got no recollection of him mentioning that any bid from Liberty needed to be in the region of $100,000?--- He could have mentioned that, yes."

Mr Tuczynski's concessions in this passage indicate that there were discussions between Mr Tuczynski and Mr McAleese about the price of the phones. After the meeting with Mr McAleese, Mr Tuczynski discussed the proposition with a potential investor, Mr Pelege. The discussions about price in the meeting, and follow up discussions with investors are more likely to have occurred after Mr McAleese offered to sell the phones to Liberty than in the absence of an offer by Mr McAleese to sell the phones to Liberty. While in evidence Mr Tuczynski repeatedly asserted that Mr McAleese did not offer to sell the phones to Liberty, I prefer the evidence of Mr McAleese on this question. That evidence accords with other evidence which is not in contention, such as the evidence as to the discussion of price and the need for Mr Tuczynski to have further discussion with his investors or associates. Further, Mr McAleese had a very short involvement in matters relating to this case. His concern was limited to organising the transfer of functions from Telstra to TT. He had no reason to say that he had made an offer if he had not. On the other hand, as I have observed earlier in these reasons, Mr Tuczynski's recollection of events was often influenced by his commitment to succeed in this case and was shown to be defective. This was another example.

Mrs Tuczynski gave short evidence about the meeting with Mr McAleese. It was to the same effect as Mr Tuczynski's witness statement. She was out of court when Mr Tuczynski made the concessions concerning discussions over price, and she disagreed with the concessions when they were put to her in cross-examination. I do not accept her evidence that Mr McAleese made no offer to sell the phones to Liberty. Mrs Tuczynski gave evidence in an emotional way. This was partly because of the strain of waiting outside court during the lengthy cross-examination of her husband. But it was also because of the strong belief in the correctness of Liberty's case. Looking at the evidence as a whole has persuaded me that Mrs Tuczynski's recollection of the meeting was also coloured by her desire that Liberty succeed, rather than informed by a recollection of the events which occurred.

At one stage, counsel for Liberty suggested that Mr McAleese sold the phones to Mr Shea without offering them to Liberty because Mr McAleese was friendly with Mr Shea and wanted to do him a favour. This was not made out on the evidence. I accept the relationship was a business relationship and that Mr McAleese approached the issue in a professional manner.

Counsel for Liberty also contended that the evidence demonstrated that Mr McAleese had concluded a sale of the phones to Mr Shea before 7 June 1993 and, consequently, did not have them for sale to Liberty on that day. As mentioned earlier in these reasons, Mr Shea invited offers for 149,453 as recovered TF200 phones on 21 May 1993. Mr Paulic, a dealer in this type of equipment, made an offer and, as a result, Mr Shea, having obtained a potential purchaser, wrote to TT on 31 May 1993, offering $100,000 for the phones. This occurred at the time when Mr McAleese was considering the letters of complaint from Liberty, dated 22 February, and from Liberty's solicitors, dated 24 May 1993. In the course of investigating the claims made in those letters, Mr McAleese spoke with Mr Shea. On 1 June 1993, Mr Shea and Mr Paulic signed an agreement that Mr Shea would sell 149,453 as recovered TF200 phones to Mr Paulic for $112,090. On 2 June 1993, Mr Paulic paid part of the deposit required by the agreement. The agreement required the balance of the deposit to be paid within three days. In fact, it was paid on 7 June 1993. On 8 June 1993, Mr Shea wrote to TT in relation to the 149,453 phones, as follows:

"Further to my letter dated 31/5/93 and having now received confirmation AB876from Warren Macaleese that the sale can proceed, Raymar Communications [a business name used by Mr Shea] hereby offers to purchase the following surplus telephones from Telecom Australia".

Counsel for Liberty suggested to Mr Paulic that there was an unconditional agreement on 2 June 1993 that Mr Shea sell the phones to him. Mr Paulic rejected this suggestion. He knew that the phones had to be obtained by Mr Shea from Telstra. He said that Mr Shea had told him, both before and after the agreement was signed on 1 June 1993, that another bidder claimed the phones as against Telstra. Mr Shea told Mr Paulic that there was a chance that the phones would not be available if Telstra accepted the claim made by the other bidder. Mr Paulic said that he agreed with Mr Shea in a phone conversation that, if the other bidder succeeded, Mr Shea would return his deposit and would not be obliged to deliver the phones. Mr Paulic paid the deposit so that the purchase could go ahead immediately if Telstra made the phones available to Mr Shea. Mr Shea gave evidence to the same effect. He explained that he only made offers to TT for the purchase of phones if he already had a potential purchaser for such phones. Counsel for Liberty suggested to Mr McAleese and Mr Shea that Telstra had sold the phones to Mr Shea before 7 June 1998. Mr McAleese rejected this. He said that he told Mr Shea that the phones would not be available until the claim by Liberty was sorted out. Mr Shea's evidence was to the same effect. The evidence of Mr Paulic, Mr Shea and Mr McAleese on this issue was all consistent. Both the Paulic purchase from Shea, and the Shea purchase from Telstra were dependent on Mr McAleese resolving the claim being made by Liberty. Mr Shea's letter dated 8 June 1993 supports the conclusion that the sale had been held up by Liberty's claims. The apparently unconditional written contract between Mr Paulic and Mr Shea dated 1 June 1993 is explained by their evidence. There is no proper basis in the evidence for finding that the phones were committed to Mr Shea before Liberty's claim was resolved.

Even if Liberty were able to establish a contractual right of first refusal or misleading and deceptive conduct on the part of Telstra, in failing to purchase the 50,000 phones from Mr Shea in May 1993, Liberty failed to mitigate its loss. Further, as Telstra offered the 149,453 phones to Liberty in June 1993, it was not in breach of the first refusal in respect of those phones.

CAUSATION - FINANCIAL POSITION OF LIBERTY - RELATIONS WITH INVESTORS AND THE BANK

Telstra contended that, even in relation to the 197,561 phones sold by Telstra between 27 February 1992 and 30 July 1994, Liberty was not in a financial position to purchase the phones and, consequently, suffered no loss arising from the alleged breach of the right of first refusal.

From the commencement of dealings in phones between Telstra and Liberty in July 1991 until November 1991, most of the purchases in which Liberty was involved were financed by investors. Liberty did not provide the purchase price. Thus, Mr McDonald paid $43,000 in July 1991 for 43,000 phones, RH Investments Pty Ltd, a company controlled by Mr Hay, provided $20,000 for 20,000 TF200 phones in October 1991, and Mr Hay or his company and Mr Dransman each provided $50,000 for the 200,000 phones supplied under Deal 3 referred to in the letter dated 27 February 1992. Mr Tuczynski gave evidence that Liberty needed the financial support of Mr Hay and his company because Liberty did not have access to funds of its own.

However, by June 1992, the relationship between Mr Tuczynski, Mr Hay and Mr McDonald had soured. Mr Hay accused Mr Tuczynski of selling, for cash, phones which did not belong to Liberty and of buying phones from Telstra on Liberty's account which should have been bought for a joint venture involving Liberty and companies associated with Mr Hay and Mr McDonald. Mr Tuczynski gave evidence that he did not trust Mr Hay, he thought Mr Hay was profiteering from Liberty by overcharging on rent for the factory in which joint venture phones were stored, that Mr Hay was a liar, and that Mr Hay had stolen phones from him. This latter allegation arose from events in June 1992, when Mr Hay, on behalf of both himself and Mr McDonald, entered the factory in which the Deal 3 phones were stored without the knowledge of Mr Tuczynski and took possession of the balance of the Deal 3 phones. On 17 July 1992, Mr Hay and Mr McDonald's companies instituted legal proceedings against Liberty and Mr Tuczynski. On 13 October 1992, those proceedings were settled and Mr Hay and Mr McDonald had no further dealings with Mr Tuczynski. From June 1992, Liberty could not expect any financial backing from its erstwhile joint venturers.

The evidence also established that Liberty could not obtain finance from its bank, the Commonwealth Bank of Australia. Between December 1992 and July 1993, Liberty had an overdraft limit of $40,000. The balance of its account exceeded the limit at all times, rising from about $50,000 in December 1992 to about $62,600 in April 1993 and dropping back to about $56,000 in July 1993. Between February and July 1993, the bank was placing pressure on Liberty to reduce the overdraft excess. Mr Tuczynski agreed in evidence that, by July, Liberty was in financial crisis. In a diary note dated 12 February 1993, Mr Kidd, an officer of the bank at the branch at which Liberty conducted its business, recorded that he had phoned Mr Tuczynski about the overdraft excess and Mr Tuczynski had told him that the excess kept increasing because of essential bills and living expenses. It is recorded that the "position is not at all satisfactory" and "the source of clearance to say the least may be regarded as CB 1811dubious and we have no clear picture as to when or if this can be achieved" and, "...unless we are satisfied as to clearance see no reason why we need to follow the connection further". On 23 March 1993, Mr and Mrs Tuczynski had an appointment with Mr Kidd. They told him that the company in Poland with which they were dealing in phones had gone into liquidation. They also said to him that Citibank would refinance Liberty and provide an overdraft of $60,000-$80,000. They sought an increase in the overdraft with the bank to $80,000. The bank's reaction is recorded in a diary note as follows:

"It now appears that the promised funds for clearance referred to in file CB 1815summary are not now forthcoming and Mr Tuczynski is looking to transfer the loan to a BDF or refinance with Citibank.

I can see no reason why we would wish to follow this account any further and would have no reservations about having the debt transferred to another lender."

On 2 April 1993, Mr Kidd rang Mr Tuczynski and advised that the bank was not prepared to continue the arrangement without firm contracts for the sale of the existing stock of phones and Liberty did not have any such contracts. Mr Tuczynski told Mr Kidd that he would probably approach Citibank for refinancing. On 6 July 1993, Mr Tuczynski confirmed that he would seek refinancing from Citibank. The bank's response is recorded in a diary note as follows:

"It is now appropriate to follow up with client and determine repayment arrangements. It may very well be the case that Citibank have declined the loan and he has not told us thus the drawn out repayment method.

In the event Citibank do not take over the debt a portion of the debt, if not all, needs to be bedded down in a P & I reduction program in order to clear our debt."

The entry is endorsed with a further note "cheques should be dishonoured on this account". On 2 September 1993, Liberty left the Commonwealth Bank and became a customer of the National Australia Bank, which provided the funds to pay out the Commonwealth Bank. Mr Tuczynski said that he would have provided additional working capital in this period by raising further funds from the bank on the security of his home. In the light of the relations with the bank, it is improbable that the bank would have provided funds to Liberty on this basis. In any event, it was not asked to do so. The bank records show that it was concerned with the ability of Liberty to make repayments from earnings. Mr Tuczynski's inability to satisfy the bank in this regard was the main reason for the financial crisis.

As the evidence of Liberty's financial state emerged in the case, Mr Tuczynski conceded that T213Liberty did not have the funds to buy the 149,453 phones which Telstra ultimately sold to Mr Shea in June 1993. Mr Tuczynski claimed that Telstra did not offer the phones to Liberty and, hence, Liberty did not get the chance to buy them. Mr McAleese claims that he did offer the phones to Liberty. It was part of Telstra's case that Liberty did not buy the phones because it did not have a financial backer. I have found that Mr McAleese did offer the phones to Liberty for $100,000 on 3 June 1993. The present issue is whether Liberty had investors willing to finance this purchase.

Mr Tuczynski gave evidence that, after meeting with Mr McAleese on 3 June 1993, he arranged "on a handshake" with Mr Pelege to finance the purchase of approximately 150,000 phones at 50cents per phone. Mr Pelege worked in the same office as Mr Tuczynski, so T188, T192the arrangement was made at work and in the presence of one of the other two financiers, Mr Herschberg. For this reason, Mr Tuczynski said, there was no entry in his diary relating to the meeting. The evidence concerning the availability of investors was very brief and lacking in specifics. Mr Herschberg did not give evidence. Neither did the third proposed investor, Dr Selvici. In the light of the unreliability of Mr Tuczynski's evidence on a number of other important issues, I would not rely on his evidence on this question unless supported by other evidence. Mr Pelege did give evidence. In relation to the few details in Mr Tuczynski's evidence, Mr Pelege gave different evidence. For instance, Mr Pelege said that the first meeting was in Carlton at a coffee shop, not in the office, and the amount agreed was $100,000, not $75,000. There was also some internal inconsistency in Mr Pelege's evidence. For instance, at one point he claimed that the funds necessary were not available from the bank at short notice and, at other times, he said that he was able to raise the funds from the bank at short notice. On the totality of his evidence, I take it that he meant to convey that he was not prepared to provide the funds for one or other, or a combination, of the following reasons. First, he understood that Mr McAleese demanded that the purchase price be paid by bank cheque within two hours. Second, Mr McAleese had increased the price to $100,000. And, third, Mr McAleese had "stuffed" him around in arranging a refund of certain money owed by Telstra to him in the past. Mr Pelege kept returning to his belief that Telstra had sold the phones to another purchaser before giving Liberty a genuine opportunity to bid for them. This belief arose, not from what Mr Pelege had been told by Telstra, but rather, I infer, from what he had been told by Mr Tuczynski at some time and what he wanted to believe. Mr Pelege was an entertaining and engaging witness, with a strong independent streak. Just as he was not prepared to be dictated to, as he saw it, by Mr McAleese, he was not prepared to assent tamely to the propositions of counsel. He told the Court that he had suffered a stroke which had affected his recollection of events. He was obviously a supporter of Mr Tuczynski's claim against Telstra. His evidence was a recollection of some of the events of June 1993 combined with some advocacy of Liberty's version of aspects of those events. As the two strands were entwined, I cannot place much reliance on the detail of Mr Pelege's evidence. I am, however, satisfied that Mr Pelege and Mr Tuczynski discussed the possibility of financial backing for the purchase of the phones in June 1993. I am also satisfied, on the balance of probabilities, that the reason for the lack of financial backing was not because the phones were unavailable. Rather, the evidence as a whole suggests two alternative reasons. Either the discussions between Mr Pelege and Mr Tuczynski did not advance beyond the preliminary stage or, if they did, Mr Pelege was not prepared to enter the transaction for his own reasons unconnected with the alleged unavailability of the phones. In either case, Liberty was not able to obtain investors to finance the purchase.

LOSS

The loss claimed in the contract claim is expectation loss, that is to say, the loss of profit resulting from Telstra failing to honour the contractual right of first refusal. Liberty claimed that it was entitled to a right of first refusal over 451,133 TF200 phones. It contended that it would have purchased the phones from Telstra for 50cents per phone and resold them for $3 per phone, after incurring a cartage expense of 5cents per phone. It claimed a total loss of profit of $2.45 per phone on 451,133 phones, a total of $1,105,275.80. I have already found that the maximum number of phones for which Liberty could claim is limited to 197,561.

The evidence concerning the available markets, prices, and expenses for the sale of secondhand TF200 phones was extensive. As I have found that Liberty's claim must fail for a number of reasons, it is unnecessary to traverse this evidence in detail. It is sufficient to state my findings briefly, as follows.

The market for secondhand, as recovered TF200 phones was difficult to develop. Liberty had concentrated its efforts on developing a market in Poland. Mr Tuczynski acknowledged the difficulty of trading in other markets in the following exchange:

"There is lots of other countries you can sell these telephones to, is there T227not?--- Well, that's right but I hadn't established those countries. I put all my work into Poland. The whole 12 months I spent organising a market for Poland. I should have organised markets for other places."

In mid 1993, the market in Poland was not able to absorb a further 150,000 phones. Mr Tuczynski said that the Polish market did not require phones at that time because the original shipment of 50,000 phones by Liberty was stockpiled there. Initially, Mr Tuczynski tried to develop the Polish market with Mr Leczynski. A sale of 50,000 phones was negotiated with a company called Bilton SA at $US3 per phone. But Bilton SA took only the first 10,000 phones. Mr Tuczynski said that Mr Leczynski mishandled the situation. To redeem the position, Mr Tuczynski said, he negotiated a sale to another company called Potel, at AUD1.50 for 30,000 phones. There is considerable doubt concerning this transaction. For instance, Mr Tuczynski was not able to establish by reference to Liberty's bank records that the purchase price was paid. Further, Mr Tuczynski's dealings in secondhand phones only started in June 1991. In less than two years, his business relationships concerning these phones with Mr Hay, Mr McDonald and Mr Leczynski had each ended in litigation. I am not satisfied, on the balance of probabilities, that there was a market in Poland for the sale of about 200,000 phones in early to mid 1993. Neither am I satisfied that, if there were such a market, Liberty would have been able to take advantage of it under the management of Mr Tuczynski.

If Liberty had been able to take advantage of a market in Poland, it would not have achieved a sale price of more than $1.50 per phone, the price said to have been agreed with Potel. I also find that Liberty would have paid between 75cents and $1 for such phones. On these figures, it is unlikely that Liberty would have made any profit at all after the expenses of the sale were taken into account. The most helpful guide to the likely financial outcome of the transaction is the sale of phones purchased by Mr Paulic under the June 1993 tender. He acquired phones for 75cents per phone and sold them for an average price of $1.20 to the Croatian market. After taking into account freight, storage and other expenses, he lost about $10,000 on the transaction. I am not satisfied, on the balance of probabilities, that Liberty would have made a profit on the sale of approximately 200,000 phones if it could have sold them on the Polish market.

Ordinarily, expectation loss would not be the appropriate basis for compensation for the Trade Practices Act claim. Rather, damages would be calculated on the basis of the loss which resulted from the making of the representation. In this case, it was agreed that the loss incurred by Liberty from the making of the representation was the cost of pursuing the establishment of the Polish market, and that this cost amounted to a maximum of $7,129.56. In reliance upon Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332, counsel for Liberty argued that expectation loss was the appropriate basis for the calculation of damages flowing from the Trade Practices Act claim in this case. In the light of the conclusion that Liberty is not entitled to any expectation loss damages, it is unnecessary to examine this matter further.

ESTOPPEL

Liberty's estoppel case was not properly pleaded in the statement of claim or by the amendment sought in this regard. In final submissions, counsel for Liberty said that he relied upon all the evidence led in support of the contract and representation claims to support an estoppel argument. As best I understood it, Liberty argued that, by sending the letter of 27 February 1992, Telstra conducted itself in such a way that Liberty was led to believe that it had a right of first refusal for future stocks of recovered TF200 phones. In reliance upon this conduct, Liberty incurred expenses in developing the Polish market and it would be inequitable to allow Telstra to resile from the representation.

The obstacles in the way of Liberty's success on the contract and representation causes of action are also obstacles to its success in this cause of action. As I have found, the representation was not made with the authority of Telstra. Further, Liberty and Telstra intended only to implement an administrative arrangement to enable Liberty to be notified of the availability of phones for sale. The arrangement was not intended to be legally enforceable. Telstra's conduct could not reasonably lead Liberty to believe that it had a right of first refusal.

In any event, Telstra did offer Liberty 149,453 phones which Liberty declined to purchase in June 1993. It was not in a financial position to do so. Neither was it in a financial position to buy the balance of the phones which would have fallen within the alleged right of first refusal. In these circumstances, the conduct of Telstra was not inequitable or unconscionable.

There was woven into the estoppel argument a contention that Mr Shea had acted unconscionably by commencing business as a dealer in phones after he left the employment of Telstra, knowing that Liberty was entitled to a right of first refusal. I doubt that Telstra would be liable on this argument for Mr Shea's actions, even if the facts supported the argument. But, in my view, the facts do not support the argument. It was undoubtedly commercially distasteful for Liberty to see Mr Shea commence operations. He had years of experience and contacts in the area of activity. He had built up an extensive business, based on his background in Telstra. But he did not know of the right of first refusal and he did not misuse his position. He was unwelcome competition to Liberty because he was so well equipped to operate in the same market. But, in my view, there was no unconscionable conduct in Mr Shea's actions.

THE CROSS CLAIM - DEBT

By the cross claim, Telstra sought $51,537, being the balance of the purchase price owing on the sale of 59,537 phones to Liberty in April 1992.

Liberty conceded that part of the purchase price remains outstanding. The difference between the parties concerns the price agreed for the transaction. Liberty contended that the price was 50cents per phone. Telstra contended that the price was $1 per phone. It is common ground that Liberty paid $3,000 on 7 April 1992 and $5,000 on 24 June 1992, a total of $8,000, against the purchase price. On Liberty's version, the amount outstanding is $21,768.50.

By April 1992, Mr Piert had taken over Mr Burke's role. He rang Mr Tuczynski on 1 April 1992 and offered Liberty approximately 60,000 phones. Mr Piert's evidence was that Mr Tuczynski offered $1 per phone. Mr Piert then sought and obtained approval of the price from Mr Shea. Mr Piert then rang Mr Tuczynski and accepted the offer. Mr Tuczynski paid a deposit of $3,000 and, on 7 April 1992, Mr Piert issued a receipt to Liberty describing the $3,000 as "deposit on 60,000 TF200's held in sifting roomcb624". On 21 May 1992, Mr Tuczynski sent a fax to Mr Piert concerning delivery of the balance of these phones, which included the sentence "Please find listed below CB660the address where you can deliver the outstanding amount of touchfones that I have secured recently on a holding deposit." On about 1 June 1992, some of the phones were delivered. On 24 June 1992, Mr Piert issued a receipt for $5,000 to Liberty for "part payment for 60,000 CB718recovered TF200 telephones (out of warranty) for export only". Mr Piert wrote on this receipt "Balance owed $22,000". Mr Piert now says that this note was incorrect, as the agreed price was $1 per phone. The last delivery occurred on about 21 June 1992. On 24 August 1992, in response to an enquiry from Mr Shea, Mr Piert prepared a note showing a breakdown of the amount outstanding by Liberty, after making allowance for 463 phones previously thought to have been delivered but not in fact delivered. The note read as follows:

"g LIBERTY BREAK OF GOODS TAKEN SO FAR

Ref 90/227/7

QUANTITIES :CB756

40,287 - NSW .

14,000 - EXICOM .

5,250 - ALTONA .

________

TOTAL $59,537

BASED ON 60,000 g @ $1.00 each

HAS PAID $3000 - DEP 7/4/92 .

$5000 - DEP 24/6/92 .

$22,000

g 463 g LESS - $ 463

@ $1.00

= $21,737.00 g owed

BP 24/8/92"

After August 1992, Mr Piert rang Mr Tuczynski seeking payment on at least three occasions. Then, on 3 June 1993, Mr McAleese sought payment of $22,000 at the meeting with Mr and Mrs Tuczynski. In September 1993, collection of the outstanding amount was placed in the hands of Telstra's solicitors.

Mr Tuczynski's evidence was that the price for the future purchase of phones was discussed by him on 7 April 1992 with Mr Shea. Mr Shea agreed that, if Mr Tuczynski paid a further $10,000 for the Deal 3 phones, no further payment would be required. Mr Tuczynski then said that this meant he had paid 50cents per phone for the Deal 3 phones and he wanted to pay 50cents per phone for all future phones. Mr Tuczynski said that Mr Shea agreed. As a result, Mr Tuczynski contended, the price of the phones which Mr Tuczynski had agreed to buy on 1 April 1992 was agreed at 50cents per phone. Mr Tuczynski's evidence as to the price agreed in relation to the 60,000 phones was directly linked to his evidence of the existence of a right of first refusal. He said that the agreement on 7 April 1992 fixed the buy price under the right of first refusal. I have rejected the contention that the parties agreed on a right of first refusal. I have found Mr Tuczynski's evidence concerning the existence of a right of first refusal generally unreliable. Further support for that conclusion is found in an examination of the terms of the purchase of the 60,000 phones. For instance, Mr Tuczynski gave evidence that the $3,000 paid on 7 April 1992 was a deposit on an open-ended obligation on the part of Telstra to supply as recovered TF200 phones to Liberty. The receipt, dated 7 April 1992, and the fax, dated 21 May 1992, establish that the deposit was paid in respect of a single transaction, being the purchase of the 60,000 phones, and not in respect of an open-ended obligation to supply phones in the future. I find Mr Tuczynski's evidence, that the price for the 60,000 phones was agreed at $1 per phone as part of a general agreement relating to all future phone purchases, to be unpersuasive. Of course, the onus of proof of the agreed price rests on Telstra. On this question, the documentary evidence is equivocal. However, the evidence of Mr Piert, which I prefer to the evidence of Mr Tuczynski, satisfies me, on the balance of probabilities, that the price agreed was $1 per phone. Making an allowance for the 463 phones deducted from Mr Piert's calculation, $51,074 remains outstanding.

CROSS CLAIM - INJUNCTION

It was a term of the sale of phones by Telstra to Liberty that the phones would only be resold for export purposes. This was to protect Telstra from the obligation to maintain those phones in Australia. The resale price of TF200 phones on the domestic market was $15-$20. The best price Mr Tuczynski obtained in the Polish market was for 10,000 phones sold to Bilton SA for $US3 per phone. A more likely average price on the Polish market was, as I have found, AUD1.50 per phone. There is, therefore, a strong financial incentive to sell on the domestic market. Liberty conceded that it had sold 5,000-6,000 phones on the domestic market, partly in order to fund this litigation. It is, therefore, appropriate that Liberty be restrained from selling any remaining TF200 phones purchased from Telstra to purchasers within Australia.

CONCLUSION

It follows from these reasons that Liberty's application will be dismissed, there will be judgment for Telstra on the cross claim for $51,074 and there will be an injunction restraining Liberty, by itself, its servants or agents or otherwise howsoever, from supplying TF200 telephones acquired from Telstra to persons within Australia. In accordance with the request of the parties, I will reserve the question of costs for determination at a time to be arranged with my Associate.

I certify that this and the preceding twenty-nine (29) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice North

Associate:

Dated: 22/09/98

Counsel for the Applicant:	Mr P J Hayes
Solicitor for the Applicant:	Hunts
Counsel for the Respondent:	Mr P W Collinson
Solicitor for the Respondent:	Holding Redlich
Date of Hearing:	1-5, 8-9 December 1997, 14-15, 20, 27 May 1998
Date of Judgment:	22/09/98