Morgan involved a question whether a bribe had been paid, contrary to the Secret Commissions Prohibition Act 1919 (NSW) in order to obtain the acceptance of a tender. A question in the case was whether, in the absence of direct connecting evidence, a payment made by a company to a particular account resulted from the receipt by its managing director of a letter, from an attorney of the company, recommending that that sum of money be paid to that account in order to achieve acceptance of the tender. In their joint judgment, at 173, Knox CJ and Dixon J said this:
An examination of hypotheses logically consistent with proved facts is the received method of testing their sufficiency to establish the conclusion. In the end, however, the reasonableness or the probability of the occurrence of such hypotheses determines their admissibility, and when coincidence of fact and concurrence of time are relied upon, the sufficiency of the circumstances must inevitably be judged by considering whether general human experience would be contradicted, if the proved facts were unaccompanied by the fact sought to be proved. In our opinion it would so astonishing if the crediting of [the amount of the bribe plus a sum for expenses] to [the particular account] were not the result of [the managing director] receiving the letter which counselled him to pay that sum to that account, that, in the absence of further evidence, it may be inferred that [the managing director] caused the credit to be made.
In Martin v Osborne the defendant was charged with driving a commercial passenger vehicle without the licence required under the Transport Regulation Act 1933 (Vic). An element of the offence was the use of a vehicle for the purpose of carrying passengers for reward. There was no doubt that the defendant had used a vehicle for the purpose of carrying passengers; but there was no direct evidence that any passenger had paid for the carriage. The facts were, however, that the vehicle concerned had been observed standing at a point from which the defendant's brother, who had a licence for his vehicle,
carried, and was advertised as carrying, passengers for reward from Ballarat to Melbourne. Not only was the defendant's vehicle seen there but a number of passengers were seen in it, luggage was seen to be placed in it and in particular "a lady with a suit case ... alighted from a passing bus and the defendant took her suit case to the car, in which he gave her a seat". Over succeeding days the car was observed picking up passengers and luggage from various points and being driven between Melbourne and Ballarat. It was held that in those circumstances carriage for reward could be inferred. In that case, of course, as in Morgan, the question was whether the commission of an offence had been sufficiently proved. Dixon J said, at 375:
If an issue is to be proved by circumstantial evidence, facts subsidiary to or connected with the main fact must be established from which the conclusion follows as a rational inference. In the inculpation of an accused person the evidentiary circumstances must bear no other reasonable explanation. This means that, according to the ordinary course of human affairs, the degree of probability that the occurrence of the facts proved would be accompanied by the occurrence of the fact to be proved is so high that the contrary cannot reasonably be supposed ... But the class of acts and occurrences that may be considered includes circumstances whose relation to the fact in issue consists in the probability, or increased probability, judged rationally upon common experience, that they would not be found unless the fact to be proved also existed.
In this case, of course, it is according to the civil rather than the criminal standard that the applicant is required to establish the facts necessary to support its cause of action. Nevertheless the two authorities make it clear, in my view, that the course I was invited to take should be embarked upon only with caution. I am unable to be satisfied, according to the civil standard, that the proved displays are to be explained by an authority emanating from the respondents. In saying that, I do not overlook the answers
given by Mr Barnett in cross‑examination on this topic; none amounted to an admission or provided, in my view, a sufficient foundation for the inference I was asked to draw. Given, particularly, the number of pharmacies with which the respondents dealt, it does not seem to me at all surprising that, in the period following the time when the respondents ceased distributing C‑Shirt products and started to distribute Alpha products, a degree of inadvertence or carelessness may have occurred in pharmacies without any prompting, or even knowledge, on the part of the respondents. Certainly I do not think that the one more recent sighting - which apparently occurred either during or shortly before the hearing - should (without any direct evidence) be attributed to the respondents.
My conclusion, accordingly, is that this aspect of the applicant's claim fails also.
Misleading or deceptive conduct; deceit
I shall deal with the statutory cause of action first. It arises under subs 82(1) of the Trade Practices Act. The relevant effect of that subsection, for present purposes, is that it entitles a person who suffers loss or damage by conduct of another person, done in contravention of a provision of Part V, to recover the amount of the loss or damage by action against that other person or against any person involved in the contravention. The provision of Part V in question here is, of course, s 52 which, in subs (1), provides that a "corporation" (remains for the present purposes a trading corporation) shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. It was suggested also that s 53 might be relevant: given the conclusions to
which I have already come, I do not think there is any basis in the evidence for a claim that the first respondent has contravened that section.
The critical period for this purpose began in September 1994 and ended at the time of the first respondent's "resignation". During that period Mr Barnett made a number of false statements to the Franklins. There can be no doubt, in my view, that his statements are to be attributed to the first respondent (the contrary was not suggested) nor can there be any doubt that they were made to the Franklins as directors of the applicant. Although the points of defence deny that the first respondent is a trading corporation that denial was, properly, withdrawn by counsel for the respondents: clearly the first respondent is a trading corporation; and equally clearly the statements were made in trade or commerce.
I have already set out the evidence relating to the correspondence and conversations Mr Barnett's part in which constitutes, principally, the conduct relied on. Before returning to that, however, I should mention that Mrs Franklin gave affidavit evidence that in September 1993 Mr Barnett said, in response to Mrs Franklin's comment that she "had no security over him and that he could go and sell another brand into all the pharmacies that had been set up with my product" Mr Barnett replied "I hope you don't think that I would do that". Mr Barnett denied that conversation and it received no attention in cross‑examination. It is not appropriate, I think, to find as a fact that Mr Barnett made the remark attributed to him. In a somewhat different context Mrs Franklin gave evidence of a conversation with Mr Barnett at a trade fair in Sydney in mid 1994 during which, according to Mrs Franklin, Mr Barnett said, referring to former
employees of another organisation who now competed with that organisation, that he would not do that to Mrs Franklin. Again, Mr Barnett denied that conversation and again it was passed over in cross‑examination. It is, however, worth noting that earlier in 1994 (but precisely when is not clear) Mr Barnett sent Mrs Franklin a fax in which, in a paragraph dealing with the then forthcoming Sydney Trade Fair, he said:
By the sound of it I will be the only one in need of space at the T. Fair. If this is the case then I would like to pay for the whole lot and have the option of offering another non competing (obviously) product range. Please discuss.
In context, however, the statement no doubt relates only to a possible display of another range of products, with the C‑Shirt products, on a stand at the fair.
The statements during and following the hat controversies are of a different order. Commencing on 27 September 1994 Mr Barnett made, in writing and orally, a series of statements which were misleading and deceptive and, in several respects, clearly (as Mr Barnett now admits) false. In the fax of 27 September the sentence "Damien has been approached by a company wishing to distribute lycra hats" was at best misleading. The following sentence, "they have now approached me to distribute in my area", was false. In the fax of the following day the statement "I have this morning declined the offer of distributing the other hat" was false. Again, what I have referred to as the final item in that series of correspondence contains a series of statements which were (as is now admitted) false. The correspondence and conversations in November 1994 concluded
with a letter which Mr Barnett said he was sending out to all the retailers with whom he dealt. That statement was false. In January 1995 Mr Barnett made statements about the Alpha product which were false; finally, although it probably in the result makes little difference, the letter of "resignation" dated 16 February 1995 includes a series of false statements.
There is no room for doubt that, commencing on 27 September 1994, both Mr Barnett and (through him) the first respondent engaged in conduct which was misleading and deceptive. The next question is, did the applicant suffer loss "by" that conduct?
In my view the evidence establishes that the applicant acted, on the faith of certain at least of Mr Barnett's statements, in a way in which it would not have otherwise have acted. The action is characterised in the points of claim as continued performance of the contract between the applicant and the first respondent. In the light of my findings on the contractual claim, the actions of the applicant cannot be so characterised, but it is not to be limited, in my view, to that formulation. The applicant regarded the distribution of the Radicool hat so seriously that it ceased supply of its own products to the first respondent, at the end of September, until the matter was resolved. It was only upon receipt of assurances (quite explicitly sought) that the first respondent and its representatives would distribute only C‑Hats that supply was resumed. It is, I think, an obvious inference that had the Franklins known the truth - particularly, had they known that not only had the first respondent and its representatives distributed the Radicool hat but that the first respondent had itself arranged for the manufacture of several thousand
hats, supply would not have been resumed. The same conclusion should be reached in relation to the episode in November. The applicant stopped supply and made it clear that supply would not be resumed until assurances were received. False assurances were given; and supply was resumed.
There can be little doubt why Mr Barnett thought it necessary to deceive the Franklins. He had told his bank manager that while he had no reason to doubt the stability of his current source of supply, matters might well be different if the supplier knew of his competitive intentions. It will be recalled that Mr Barnett's conversations with the bank manager occurred in September and that in that month his plans for the manufacture and sale of the Alpha products were being implemented. It is not difficult - and in my view it is appropriate - to conclude that Mr Barnett thought it preferable, if he could, to maintain his business of distributing C‑Shirt products until he was in a position to commence distributing the Alpha products and consolidate the market for those products.
However that may be, the next question is whether the applicant has suffered loss "by" the misleading or deceptive conduct. It was put to me strongly that loss had not been demonstrated. It was said, and truly, that the first respondent's relative share of total C‑Shirt products sold increased slightly during his last year as a distributor of those products; it was put also that any difficulties which the applicant may have suffered following the first respondent's "resignation" was not a consequence of any misleading or deceptive conduct on the part of the respondents but rather a result of the way in which the applicant had chosen to arrange for the distribution of its products: a way which was criticised by Mr Liddy, the correctness of the criticism being demonstrated by what happened. It was suggested also that the Franklins must have known, significantly before mid February 1995, that Mr Barnett was actively competing with them and they must therefore be taken to have refrained from acting on that knowledge deliberately and for their own business reasons. It was put also that, in any event, the most that had been established was potential or likely damage rather than actual loss or damage incurred: I was referred to Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514.
On this aspect of the matter the applicant is in my view entitled to succeed. It is true that the applicant, as I have found, has not established that the first respondent was under a contractual or equitable duty not to compete with the applicant or to prefer to its own interest any interest of the applicant. It may, accordingly, be accepted for present purposes that the respondents had no duty to inform the applicant of their competitive intention or the actuality of their competitive actions. Indeed, it is not entirely easy to see why Mr Barnett decided to provoke the initial confrontation by his fax of 27 September 1994. Whatever the reason, he did so; it produced an immediate and strong protest and cessation of supply; and he was able to obtain the renewal of supply only by giving assurances to the effect that he had abandoned any competitive plans in relation to hats. The events of late September could hardly have left any doubt as to the reaction or likely response of the applicant to competitive activity on the part of the respondents, and the events of November re‑emphasised what had already been made clear. I cannot accept that, if the applicant had not been misled, it would simply have resumed supply
regardless. Accordingly, it is unnecessary to consider further the effect of later misrepresentations except to say that the respondent did not take advantage of any opportunity for correction: instead, he persisted in the deception.
That leads to the question of loss. What actually happened was that the first respondent was able to continue in the market as a C‑Shirt distributor until its own rival business was firmly established with the pharmacists with whom it dealt. I think it is proper to infer that if the first respondent had not had that opportunity the difficulties which the applicant later faced in seeking to re‑establish its products with those pharmacists would have been significantly reduced. The first respondent, without a full range of products immediately available, would have been a considerably less formidable competitor than it was at the time when it chose to "resign". Obviously the applicant would not have had the benefit of the sales actually made by the first respondent after the end of September; but it would have been able, perhaps through other distribution arrangements, to continue to sell its products in circumstances where it was not faced with immediate challenge in the market by a former distributor and with a full range of competitive products.
There remains the argument based on Wardley. In my view that argument should not be accepted. The applicant's loss has not yet, of course, been quantified; but to the extent that it can be quantified, it is an actual loss already suffered not merely a potential or likely loss. This is an entirely different case from one in which, for example, an agreement has been entered into in reliance on misleading conduct but the consequences of the agreement, in terms of actual detriment or benefit, are yet to be ascertained.
The evidence does not establish precisely the date of the concluding item in the September correspondence or the precise date on which supply to the first respondent was resumed. It appears, however, that those events happened by 30 September 1994. For the purpose of quantifying damages, I think 30 September 1994 should be taken as the date on which the applicant acted in reliance on the first respondent's misleading or deceptive conduct.
On that footing, the applicant succeeds on this aspect of its claim.
It succeeds similarly, and on the same basis, in relation to its claim in deceit. The September representations clearly include what on any view are representations of fact, in addition, perhaps, to some which are of a merely promissory kind. It is clear from Mr Barnett's evidence that he, and therefore the first respondent, knew them to be false. I have found that they were intended to be acted upon and were acted upon by the applicant to its detriment. The damages to which the applicant is entitled under this head are, I think, to be ascertained on precisely the same basis as are the damages to which it is entitled under s 82. In other words, they are the same damages. It was suggested that the applicant should have exemplary damages as well but, beyond a brief reference to Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118, an argument to that effect was not developed. It is not by any means clear whether, or to what extent, exemplary damages are available in an action in deceit: see, e.g., Archer v Brown [1985] QB 401. Clearly the mere fact that it is an action in deceit, and that deceit is fraud, will not suffice. That being so, I can see nothing in the circumstances of this case calling for
damages beyond those necessary to compensate the applicant for its loss resulting from the misrepresentations.
Account of profits?
It was suggested that an order for an account of profits might be made, as an alternative to damages, under s 87 of the Trade Practices Act. Whether or not such an order may in some circumstances be made under s 87, I do not think it is appropriate in this case. An order for an account of profits is not among the particular orders referred to in subs 87(2); more importantly, the purpose of an order under s 87, as stated particularly in subs (1A), is to compensate for, or to reduce, the loss or damage resulting from a contravention. That is, of course, not the function of an order for an account of profits. In a case such as this, in my view, damages under s 82 are the appropriate remedy.
Claims against second and third respondents
The relevant claims are those in deceit and for misleading or deceptive conduct under the Trade Practices Act. As to the claim in deceit, there is no evidence on the basis of which any liability can be attributed to the third respondent. Clearly Mr Barnett, the second respondent, is liable to the same extent as is the first respondent: all the relevant representations were made by him.
Similarly conclusions follow under s 75B of the Trade Practices Act. Plainly Mr Barnett was knowingly concerned in and a party to the contraventions; he is liable to the same extent as is the first respondent.
Once again, there is no evidence which in any way directly indicates a connection between the third respondent, Mrs Barnett, and the representations. It was put that she should, nevertheless, as a director of the first respondent and one who had, on the evidence, played at least some part in its affairs, be regarded as a person involved in the contraventions by the first respondent of s 52. In my view, however, in the absence of any evidence to Mrs Barnett's knowledge of any of the material matters, that is conclusion which should not be drawn: Yorke v Lucas (1985) 158 CLR 661; Crocodile Marketing Ltd v Griffith Vintners Pty Ltd (1989) 12 ATPR 41‑000.
"Injurious falsehood"
I have mentioned that it was suggested that the applicants were entitled to relief on this basis. The suggestion appeared to be based principally on the letter dated 2 February 1995 to the first respondent's customers, which appears to have been sent out after the first respondent's "resignation". I do not think that such a claim is made out. It is not entirely clear that there are statements in the letter which are both false and disparaging of the business of the applicant. Secondly, it is not established that the element of "malice" is made out: see, for example, Loudon v Ryder (No. 2) [1953] 1 Ch 423. Finally, proof of special damage is required, and there is no evidence of loss flowing from the publication of the letter.
Conclusion
In the result, on the question of liability the applicant succeeds against the first and second respondents, to the extent I have indicated, in its claims based on deceit and,
under the Trade Practices Act, based on misleading or deceptive conduct. The question of damages, of course, remains to be dealt with. If they cannot be agreed then the matter will have to be relisted for the taking of evidence and submissions on damages. It is appropriate in the circumstances to reserve the question of costs. I direct the applicant to bring in short minutes of the orders necessary to give effect to these reasons.
I certify that this and the preceding 58 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.
Associate:
Dated: 10 December 1996
Heard: 4-8 and 11-13 November 1996
Place: Sydney
Decision: 10 December 1996
Appearances:Mr R W R Parker QC with Mr M A Bradford of counsel instructed by Davidsons Solicitors appeared for the applicant.
Mr C Golvan of counsel instructed by Michael Kraus and Associates appeared for the respondents.