The proceedings
The applicant seeks the following substantial relief:
A declaration that the conduct of the respondents particularised in the statement of claim accompanying this application constitutes conduct in trade or commerce which is misleading or deceptive or which is likely to mislead or deceive in contravention of section 52 of the Trade Practices Act and/or section 42 of the Fair Trading Act.
Merpro Montassa Ltd v Conoco Specialty Products Inc [1996] FCA 847 | Case summary | Zoe
An order for damages pursuant to section 82 of the Trade Practices Act and/or section 68 of the Fair Trading Act.
Further or other orders pursuant to section 87 of the Trade Practices Act and/or section 72 of the Fair Trading Act.
An order that the first respondent pay damages for its breach of the consultancy agreement (as varied) particularised in the statement of claim.
An order that the second respondent pay damages to the applicant pursuant to its guarantee of the first respondent's obligations as particularised in the statement of claim.
The applicant has filed and served an amended statement of claim and several affidavits. Together these constitute the material by reference to which the fate of the second respondent's motion is to be decided.
In brief outline, the facts alleged in the amended statement of claim are these. The applicant and companies associated with it carried on business, under a franchise agreement, as retailers of computer equipment. The business - known as ComputerLand -was carried on at Wagga Wagga and Albury‑Wodonga. The second respondent is a substantial corporation, based in Singapore, which manufactures and sells computer equipment. The first respondent is incorporated in Australia, is wholly owned (or almost so) by the second respondent and carries on a business of importing and distributing computer equipment. In the latter part of 1993, officers of the second respondent contacted Messrs Lean and Davis, directors and shareholders of the applicant. Following negotiations which took place during the succeeding months and during which, the applicant claims, various representations were made to it on behalf of both respondents, the applicant terminated its franchise arrangements and, on 6 April 1994, entered into a "consultancy agreement" with the first respondent. At the same time, the computer retailing businesses at Wagga Wagga and Albury‑Wodonga were bought by the second respondent. The consultancy agreement was expressed to have a term of five years, "both parties" having an option to extend it for a further five years. It provided that the applicant was to provide services to the second respondent in relation to the computer distribution and retailing businesses at Wagga Wagga and Albury‑Wodonga and at other places within a substantial area of New South Wales. Later amendments to the agreement included the extension of the geographical area to which it applied. The second respondent, it is claimed, guaranteed the obligations of the first respondent under the consultancy agreement. The first respondent, the applicant says, breached its obligations under the consultancy agreement in a number of respects; the breaches alleged include failure to pay sums due under it and are said to have been such as to amount to repudiation of the agreement. Consequently the applicant claims to be entitled to damages against the first respondent. The applicant claims to be entitled to the amount of those damages also against the second respondent under its alleged guarantee of the first
respondent's obligations. The applicant says also that it would not have entered into the consultancy agreement, or agreed to its amendment, but for the various representations said to have been made on behalf of both respondents to Messrs Lean and Davis. The representations were false, or were not made good, and their making constituted misleading or deceptive conduct on the part of the respondents. As a result of the respondents' misleading or deceptive conduct the applicant suffered loss and is entitled to damages under s 82 of the Trade Practices Act 1974 and also under s 68 of the Fair Trading Act 1987 (NSW). By the amended statement of claim the applicant says also that the representations relied on constituted warranties having contractual force, the consideration for which was the applicant's entry into the consultancy agreement, and that, the warranties being false, each respondent is in breach of the collateral contract thus arising. On that basis also the applicant claims to be entitled to damages, as against each respondent.
The second respondent says that the applicant has failed to make out a prima facie case against it on any of the bases alleged in the statement of claim. In relation to the claims under the Trade Practices Act and the Fair Trading Act, the second respondent says also that the conduct relied on occurred outside Australia so that there is no claim under the Fair Trading Act or, because the requirements of s 5 of the Trade Practices Act are not met, under that Act.
I shall deal with the causes of action in turn. It is convenient to begin with those based on alleged misleading or deceptive conduct.
Claims under the Trade Practices Act and Fair Trading Act
The representations relied on are all attributed to officers of the first respondent, not of the second respondent. Particularly, they are attributed to Mr Howard Merry, at the time the managing director of the first respondent, Mr Ron Lewis (then the marketing manager of the first respondent) and Mr Colin Bunnett (then the company secretary of the first respondent). The representations are alleged to have been made during a period beginning in late November 1993 and ending shortly before the consultancy agreement (between the applicant and the first respondent) was executed on 6 April 1994. A number of the representations, though pleaded as having been made on behalf of both respondents, clearly relate more closely to the first respondent than to the second: for instance, representations said to have been made on 6 April 1994 to the effect that the consultancy agreement would assure the applicant of "ten years good income and profit sharing with" the first respondent and that the first respondent "would not supply IPC branded products to any other retailer in the Albury‑Wodonga or Wagga Wagga areas or in any areas where" the applicant "managed an IPC Centre". Others, though relating principally to the first respondent, are nevertheless claimed to have been made also on behalf of the second respondent on the footing (for which there is support in the affidavit evidence) that the representations purported to be based upon policy of the second respondent as the holding company in the group: particularly, representations claimed to have been made during a meeting in Melbourne on 22 February 1994 (the amended statement of claim says "2 February" but the context and evidence make it clear that this is a mistake) and repeated in substance during a meeting in Wagga Wagga on about 15
March 1994, to the effect that "IPC Corporation/IPC Australia" would not pay any consideration for goodwill on acquisition of the businesses at Albury‑Wodonga and Wagga Wagga but that more than adequate compensation would be provided under the consultancy agreement. There is then, finally, a further category of alleged representations, relating particularly to the second respondent. Thus, for instance, Mr Lewis is said to have represented during a telephone conversation in November 1993 with Mr Lean that the second respondent was a cash rich organisation based in Singapore which was planning to expand very quickly into Australia; and at the meeting in Melbourne on 22 February 1994, Mr Merry is said to have represented that the second respondent was a cash rich company based in Singapore, that the second respondent, being a cash rich company, would be able to drive a major competitor out of the market and that the second respondent would guarantee payment to all the creditors of the first respondent, including the applicant.
Counsel for the second respondent did not suggest that there was no sufficient prima facie case that the representations alleged had been made. He did contend, however, that I ought not conclude that the applicant had established a prima facie case that the representations, if made, constituted conduct of the second respondent. He pointed out that each of the persons said to have made the representations was, at the time, an officer or employee of the first respondent and was not, so far as the evidence goes, an employee or officer of the second respondent. He contended that there was no basis on which I could infer that the representations were made on behalf of the second respondent rather
than (or as well as) on behalf of the company by whom the persons making representations were employed.
On this aspect of the case the applicant relies principally on an affidavit sworn by Mr Merry on 28 August 1996. Mr Merry deposes to a series of meetings, in Singapore and Melbourne, with the principals of the second respondent. Discussion at the meetings concerned the possibility that the second respondent would enter the Australian market. They resulted in agreement that Mr Merry would "set up IPC in Australia": this was to involve the establishment of a wholly owned subsidiary capitalised at $250,000 which, in accordance with a business plan prepared by Mr Merry and colleagues of his, would within twelve months open ten IPC centres. Mr Merry says that, at the time the business plan was presented, he had the following discussion with Mr Patrick Ngiam, a director of the second respondent:
I said: $250,000.00 will not be enough to fund the business. Because of my prior experience in Hi‑Soft I know that I need a guarantee from IPC Corporation Limited that I can pay our bills in Australia. Otherwise I could be personally liable.
Patrick Ngiam said:
IPC Corporation will do that. The way we can do it is by supplying stock to the Australian subsidiary and giving it credit terms with IPC Corporation which will then allow you the cash flow to pay all bills in Australia. IPC Singapore will capitalise IPC Australia at the end of 1994 based on its requirements. During the initial growth period the best way of doing that is through stock. At all times you have full authority from us and IPC Corporation Singapore will guarantee you and be responsible for all debts incurred.
Mr Merry also gives evidence of statements made by Mr Ngiam at meetings of suppliers to the effect that the second respondent would guarantee any debts incurred by the first respondent. He then says that between 25 February and 6 April 1994 he spoke with Mr Bernard Ngiam (also a director of the second respondent) "on an almost daily basis" concerning the proposed acquisitions by the first respondent of the businesses at Wagga Wagga and Albury‑Wodonga; on several occasions between March and 6 April 1994, according to Mr Merry, Mr Bernard Ngiam said words to the following effect:
IPC Corporation in Singapore completely guarantees IPC Australia. Feel free to pass on to the ComputerLand guys at Wagga and Albury that IPC Corporation is fully behind you.
The applicant relies on that evidence as showing, sufficiently for the purposes of the Court's jurisdiction to give leave to serve process outside the jurisdiction, that the second respondent was intimately involved in, and constantly in discussion with Mr Merry concerning, the then proposed transactions between the applicant and the first respondent; that the second respondent gave Mr Merry its "full authority" in relation to the establishment of the IPC business in Australia; and that, particularly, Mr Merry was authorised by the second respondent to tell those who controlled the applicant that the second respondent was "fully behind" Mr Merry (and the first respondent).
The principles to be applied are well established. In Merpro Montassa Ltd v Conoco Specialty Products Inc (1971) 28 FCR 397 Heerey J, after referring to the explanation of
the concept of a prima facie case in May v O'Sullivan (1995) 92 CLR 654 at 658, continued (at 390):
It need only be added that the requirement of O 8, r 2(2)(c) has to be met at the outset of the proceedings. It does not suggest the kind of scrutiny that would occur in a submission of no case to answer following the closure of an applicant's case at trial. As a matter of practicality, one is here concerned with, in Sheppard J's words, "evidence which discloses in a little detail what the facts are ..." ... . It may be therefore that a court at this stage might draw inferences more readily in favour of an applicant, bearing in mind, amongst other things, that the applicant will not have had had the advantage of discovery, subpoena and other procedural aids to the making out of a prima facie case at trial.
See also WSGAL Pty Ltd v Trade Practices Commission (1972) 39 FCR 472 at 473, 476; Cell Tech Communications Pty Ltd v Nokia Mobile Phones (UK) Ltd, Lindgren J 20 April 1995 unreported at 15‑17; Sydbank Soenderjylland A/S v Bannerton Holdings Pty Ltd, FCA Full Court 9 August 1996 unreported at 15, 16.
In my view the evidence of Mr Merry sufficiently establishes a prima facie case that he was authorised, on behalf of the second respondent, to make the representations which he is alleged to have made as to the standing of the second respondent, its financial support of the first respondent and the consequent security of the position of the applicant under the consultancy agreement with the first respondent. Assuming (as I should for present purposes) the truth of the evidence, Mr Merry was given "full authority"; he was explicitly asked to "pass on" obviously material matters relating to the second respondent's position and intentions; and, on the same assumption, it is evident that Mr
Merry received continued and clear encouragement to make representations to those representing the applicant about the size, capacity and proposals of the second respondent.
It may be added that, on Mr Merry's evidence, he was within the meaning of subs 84(2) of the Trade Practices Act a person engaging in conduct "at the direction or with the consent or agreement ... of a director ..." of the second respondent. If his conduct in making the representations to which I have referred was conduct "engaged in on behalf of" the second respondent, then the subsection attributes the conduct to the second respondent itself. As used in the subsection, the expression "on behalf of" is one of considerable width: see Walplan Pty Ltd v Wallace (1985) 8 FCR 27 at 37, 38.
Counsel for the second respondent submitted that, to the extent that the representations alleged relate to future matters (the guaranteeing, for example, of obligations of the first respondent) s 51A of the Trade Practices Act applied so that, assuming representations to have been made on behalf of the second respondent, they are not to be taken as misleading if the second respondent had reasonable grounds for making them. Because the question whether there were reasonable grounds was to be judged in relation to information and states of mind in Singapore, the relevant conduct was engaged in outside Australia so that the limitations in s 5 of the Act were applicable. With respect, however, I do not think that is right: the relevant conduct was the making of the representations not the state of mind of those who authorised them: clearly, if they were made, they were made in Australia. It would be odd indeed if, though a foreign corporation might be liable if one of its officers privy to the state of its corporate mind
visited Australia and made representations, it might escape liability if that officer directed some other person to make the representations, in Australia, on behalf of the corporation.
Counsel did not submit that if the alleged representations were made on behalf of the second respondent I should not find a prima facie case that they were misleading or deceptive or that they were relied upon. There was a submission, not very fully developed, that no prima facie case of resulting loss had been made out. In my view, the affidavit evidence, in its quite detailed narrative of subsequent events, adequately establishes a prima facie case on all those aspects of the statutory cause of action. It follows that the motion, so far as it relates to relief claimed on the basis of a breach of s 52 of the Trade Practices Act, should be dismissed. It is unnecessary to consider separately issues arising under the Fair Trading Act.
The alleged guarantee
The relevant paragraphs of the amended statement of claim are as follows:
At all relevant times Howard Merry was the duly authorised agent in Australia of IPC Corporation.
On 22 February 1994 Howard Merry, acting on behalf of IPC Corporation, agreed with Alan Lean and Paul Davis that in consideration of AIMS Computer Systems agreeing to provide consultancy services to IPC Australia IPC Corporation would guarantee the debts in Australia of IPC Corporation including any debts due to AIMS Computer Systems ...
It was not disputed that a guarantee in those terms might be given orally, so as to bind a corporation, by someone authorised by the corporation to do so. The question is whether the applicant has sufficiently established a prima facie case that that is what happened.
Counsel for the second respondent pointed out that the agreement pleaded in paragraph 16 of the amended statement of claim, said to constitute the guarantee, is expressed as an agreement with Messrs Lean and Davis not one with the applicant. Certainly that is true, and it may be that the statement of claim requires further amendment. That, however, would not by itself be fatal to an application for leave to serve process outside the jurisdiction and it does not necessarily assure the success of a motion to set aside an order granting leave. The question is whether, on all material before it, the court is satisfied that a prima facie case has been established justifying the relevant relief sought in the application: Cell Tech at 18, 19. I do not think there can be any doubt that if words said with the authority of the second respondent were to be read as words of guarantee of the obligations of the first respondent under the consultancy agreement, and if there were sufficient evidence of consideration supporting a guarantee, then leave to serve outside the jurisdiction might properly be granted despite the deficiency in the pleading.
However, if the guarantee claim stood alone I would have serious reservations about whether service of an application seeking relief in reliance on it should be allowed to stand. The alleged guarantee relied on arises from the conversation in Melbourne on 22 February 1994 and, because no subsequent ratification is suggested (on the evidence, I doubt that it could be), the authority to enter into the guarantee must be found in matters
preceding the meeting in Melbourne. The only relevant evidence seems to be that of Mr Merry which I have already quoted, in which he recounts what was said to him by Mr Patrick Ngiam; particularly, the words:
At all times you have full authority from us and IPC Corporation Singapore will guarantee you and be responsible for all debts incurred.
That is, I think, a rather slender reed upon which to rely for authority to enter into a contract of guarantee in relation to a particular agreement to be entered into by the first respondent. Be that as it may, the words relied on as giving the guarantee are words which in his affidavit of 30 June 1996 Mr Lean attributes to Mr Merry and Mr Merry confirms in his affidavit). They are:
IPC Australia is fully owned by IPC Corporation in Singapore which will guarantee all of IPC Australia's obligations to its creditors. IPC is a cash rich company.
It seems to me to be drawing rather a long bow, even on a prima facie basis, to say that that statement amounts to a guarantee of the first respondent's obligations under the consultancy agreement. It is to be remembered that the negotiation of those arrangements had only just begun and that considerable further negotiation was required in order to settle them. I am by no means convinced that those words uttered, in the course of the early part of negotiations which led ultimately to agreements for sale and a consultancy agreement, should be taken as offering a binding commitment, in consideration of a
consultancy agreement being entered into, to guarantee obligations arising under that agreement.
The question then arises, if I should take that view, whether, given the way in which the application specifically attributes particular claims for relief to particular causes of action, I should make an order similar to that made by Wilcox J in Tycoon Holdings Ltd v Trencor Jetcor Inc (1972) 34 FCR 31. Counsel for the second respondent suggested, at the conclusion of his submissions in reply, that I should do so but he did not elaborate and the question was not otherwise dealt with in argument. Apart from a declaration as to infringement of s 52 (and s 42 of the Fair Trading Act) the relief claimed in respect of each cause of action is "damages". The cause of action on the alleged guarantee relies on a particular representation among those claimed to amount to misleading or deceptive conduct; the circumstances giving rise to each claim are substantially similar; the measure of the damages covered by the alleged guarantee is likely to bear a close relationship at least to part of the damages claimed to have been caused by the allegedly misleading or deceptive conduct. In those circumstances I think I should apply, despite the particularity of the application, the "preponderant view" referred to by Lindgren J in Cell Tech at 17, with the result that having held that leave was properly granted for service out in relation to the Trade Practices Act claim I should not set aside service of so much of the application as is based on a cause of action arising under the alleged guarantee.
Collateral contract
My conclusion in relation to the guarantee would in any event enable me to deal with this matter summarily. There is, however, an additional consideration: the originating process, which is the application not the statement of claim, claims no relief based on any collateral contract. The collateral contract alleged in the amended statement of claim is that the representations relied on for the cause of action under the Trade Practices Act "constituted" a contract collateral to the consultancy agreement, that contract (presumably: the pleading is not entirely clear on this) being breached because the representations were untrue or were falsified in the event. Counsel suggested that such a contract, between parties other than those to the principal contract (the consultancy agreement), was an impossibility. I doubt that that is right; I doubt also, however, that the evidence before me establishes, even on a prima facie basis, the existence of such a contract. However, both because the application in its present form (leave to grant service of which was given) does not rely on a collateral contract and because the "preponderant view" referred to by Lindgren J would apply even more clearly to the collateral contract than to the guarantee, there can be no question of setting aside, on this basis, service of any part of the application.
[2]
Conclusion
For those reasons the second respondent's motion is dismissed with costs.
I certify that this and the preceding 15 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.
Associate:
Dated: 20 September 1996
Heard: 12 September 1996
Place: Sydney
Decision: 20 September 1996
Appearances:Mr F G Lever of counsel instructed by Grinberg Young appeared for the applicant.
Mr A W Street of counsel instructed by Blake Dawson Waldron appeared for the respondent.