[1993] FCA 430; (1993) 122 ALR 279

Trade Practices - misleading or deceptive conduct - representations by telephone and facsimile - whether conduct in Australia - respondents not participating in proceedings - motion for summary judgment - judgment against corporate respondent - requisite state of mind not established against natural person respondents.

Trade Practices Act 1974 (Cth) s.53, s.75B, s.82

United Kingdom Civil Jurisdiction and Judgments Act 1982 (UK)

Commercial Arbitration Act 1985 (WA)

Diamond v. Bank of London and Montreal Ltd (1979) 1 QB 333

1. There be judgment for the applicant against the first respondent for damages to be assessed for contravention of s.52 of the Trade Practices Act 1974.

3. The first respondent to pay the applicant's costs of the action thus far including the costs of this motion.

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

FRENCH J These proceedings were instituted on 22 March 1993 by Paper Products Pty Ltd (Paper Products). Paper Products claim damages under s.82 of the Trade Practices Act 1974 (Cth) against Tomlinsons (Rochdale) Ltd (Tomlinsons) and two of its officers, Nigel Watts and David Murphy. Alternative relief is claimed against Tomlinsons for damages for breach of contract and negligence. Tomlinsons is a company registered in the United Kingdom where both Watts and Murphy reside. On 6 April leave was given to amend the application and the statement of claim and to serve the amended application and statement of claim out of the jurisdiction. Tomlinsons and Mr Watts were served in Lancashire in the United Kingdom on 21 April 1993 and Mr Murphy on 26 April 1993. Tomlinsons filed a notice of conditional appearance on 25 June 1993. No appearance was filed by Messrs. Watts and Murphy.

2. On 24 June 1993, a letter was sent by Linder Myers, a firm of solicitors in Manchester, to the solicitors for Paper Products. The letter was said to be a copy of a letter sent to the Court, although the original does not seem to have reached the Court file. The letter advised that Mr Murphy did not intend to enter any appearance or take any steps in relation to the action. It asserted that he resides in England and has never resided or carried on business in Western Australia and is neither employed by nor a director of Tomlinsons, having resigned from his position with that company on 4 November 1990. He has never, it was said, submitted to the jurisdiction of the Federal Court or any other Australian Court. His solicitors in England had advised him that by virtue of the United Kingdom Civil Jurisdiction and Judgments Act 1982 (UK), English courts would decline to register the enforcement against him in England of any judgment which might be entered against him in this action. He maintained nevertheless that he denies the allegations made against him in the action and if the proceedings were to be issued in England on the same basis he would defend those and seek orders against Paper Products. A similar letter dated 23 June 1993 was sent to the Court by Pinsent and Co., solicitors of Birmingham, on behalf of Mr Watts.

3. By a motion filed on 25 June 1993, Tomlinsons sought substantive orders in the following terms:

1. Pursuant to Order 9 Rule 7(1) of the Federal Court Rules

the order of this Honourable Court granting leave to the

applicant to serve the originating process outside

Australia and in the United Kingdom be discharged and

service of the originating process upon the first

respondent be set aside.

2. Pursuant to section 53 of the Commercial Arbitration Act

1985 (WA) the within proceedings by the applicant against

the first respondent be stayed.

The only question pursued on the return of the notice of motion was whether or not the application should be stayed pursuant to s.53 of the Commercial Arbitration Act 1985 (WA) by reason of an arbitration clause in the relevant contract between Paper Products and Tomlinsons. In the event the motion was dismissed for reasons published on 23 July 1993. At that time, counsel for Tomlinsons informed the Court that his client did not intend to participate further in the proceedings nor to comply with any order of the Court. The directions hearing was thereafter adjourned to 11 August 1993.

4. On 10 August, a motion for judgment against each of the respondents was filed returnable on 11 August 1993. It was supported by an affidavit of Zheng Fuhu, a director of Paper Products, stating his belief in the truth of the matters set out in an affidavit of Coomaraswamy Sivandran sworn 15 March 1993 and filed with the originating application. None of the respondents appeared on the return of the motion and a decision on the motion was reserved until today.

5. Paper Products' motion is for summary judgment and is brought pursuant to O.20 of the Federal Court Rules. The following orders are sought.

" 1. Pursuant to Order 3 Rule

3(1) of the Federal Court

Rules the time between

the service and the

hearing of this motion be

abridged.

2. Pursuant to Order 20 of the Federal Court

Rules the Applicant have judgment against

the Respondents and each of them in the

amount of $10.5 million and interest

thereon at the discretion of this

Honourable Court pursuant to Section 32 of

the Supreme Court Act from 9 November 1990

until judgment; alternatively that there

be judgment against the Respondents and

each of them with damages to be assessed

and that there be directions given for the

assessment of such damages.

3. A further order that the First Respondent

indemnify the Applicant in respect of any

damages for which it may be found liable

to the Western Australian Egg Marketing

Board.

4. The Respondents pay the costs of this

motion and of the action to be taxed."

6. Paper Products alleges that in or about February 1990, the Ministry of Economic Development of the Government of Western Australia invited expressions of interest to undertake paper pulp moulding to produce egg cartons for the Western Australian Egg Marketing Board. The Ministry's invitation noted that the Board, trading as Golden Egg Farms, had established a framework to enable the introduction of a new industry to produce suction moulded fibre packaging products in Western Australia. There were then, it was said, no current manufacturers of suction moulded egg cartons or other suction moulded fibre products in the State. Existing arrangements for the supply of egg cartons and filler flats to the Board were to expire on 30 June 1990 and the Ministry and Board were prepared to assist with the establishment of a local industry by offering a term contract for the supply of egg cartons and filler flats produced from waste newsprint and other waste paper to a Western Australian manufacturer. This was subject to the products being priced at a level competitive with prevailing prices, quality standards and the availability of carton types. Contract details and product specifications were set out in an appendix to the Ministry's invitation.

7. A company called Paper and Pulp International Pty Ltd (PPI), of which Dr. Coomaraswamy Sivandran was a director, and another company called Recycling Technology Pty Ltd as prospective joint venturers expressed interest in undertaking paper pulp moulding to produce egg cartons for the Board. Paper Products was incorporated on 11 April 1990 with all of its issued shares registered in the name of PPI. Between January and October 1990, Paper Products and, alternatively, the prospective joint venturers negotiated with Tomlinsons through Messrs. Watts and Murphy for the supply by Tomlinsons of paper pulping machinery. In the course of those negotiations, it was said that Dr. Sivandran made known to Tomlinsons that he had responded to the Ministry's invitation with an expression of interest and that the prospective joint venturers and, alternatively, Paper Products were interested in acquiring from Tomlinsons machinery capable of meeting the requirements set out in the invitation.

8. In the course of the negotiations, it is said that Tomlinsons stated that, for the purposes of satisfying the requirements specified in the invitation, a line of machinery comprising three components, being a paper pulp moulding machine, a continuous hot press and stacker machine, and a printing machine, would be required. Tomlinsons said it manufactured machines producing egg boxes but not incorporating hot press facilities. Further, it is alleged that Tomlinsons represented that it could supply a complete line of machinery comprising a TR4 paper pulp moulding machine which it manufactured itself, a "Peerless" hot press manufactured in the United States of America and a printing machine manufactured in the United States of America. When used together the three machines would be capable of complying with the requirements of the Board as set out in the invitation and producing 3,000 twelve pocket egg cartons per hour (para.12(c)). Paper Products alleges that Tomlinsons suggested two alternative ways of acquiring a complete line of machinery necessary to satisfy the requirements in the Ministry's invitation. Separate orders could be placed with suppliers for the three components, including an order directed to Tomlinsons for a printing machine. Alternatively, all three components could be acquired through Tomlinsons. In consideration of Paper Products or the joint venturers contracting with Tomlinsons for the supply and installation of all components, Tomlinsons allegedly promised to warrant that the three machines would together perform to the standards specified in the invitation and be capable of producing 3,000 twelve pocket acceptable egg cartons per hour (para.13). The representations are said to have been made with the intention and knowledge that they would be relied upon by some entity interested in acquiring the complete line and in the further knowledge that Paper Products would be incorporated specifically for the purpose of conducting the business of the joint venturers and that it would or reasonably would be expected subsequent to incorporation to rely upon the representations (para.14). Paper Products says that in reliance upon the representations it entered into a written agreement dated 9 November 1990 with Tomlinsons under which Tomlinsons agreed to supply it with the three machines for the sum of GBP931,500 (para.15).

9. The machines are said to have been delivered to Paper Products and installed in October to December 1991 (para.17). The representations made by Tomlinsons are said to have been false. The complete line of machines was not and never had been capable of meeting the Board's requirements under the invitation nor of producing 3,000 acceptable egg cartons per hour (para.18). Tomlinsons, it was said, did not have reasonable grounds for making the representations which were misleading (para.19). Further it was said that the Peerless hot press was not and never had been capable of meeting the Board's requirements under the invitation nor of producing 3,000 twelve pocket egg cartons per hour (para.20). The representation as to the hot press was allegedly made without reasonable grounds and was misleading as Tomlinsons had never before tested its capability nor installed such a machine to be used on a continuous basis with a pulp moulding manufacturing machine (para.21).

10. Tomlinsons, it is alleged, had engaged in misleading or deceptive conduct and conduct in contravention of paras.53(a) and 53(c) of the Trade Practices Act 1974 (Cth) (para.22). Messrs. Watts and Murphy are said to have been persons who were involved in the contraventions pursuant to s.75B of the Trade Practices Act 1974 (para.23).

11. Alternatively it is alleged that Tomlinsons was in breach of the collateral warranty which it had offered (para.24). A plea of negligent misrepresentation is also raised (para.27). The damages claimed are pleaded under the same heads for the contraventions of the Trade Practices Act, the breach of warranty and the negligent mis-statement. It is also alleged that by notice dated 30 November 1992 the Board has terminated its agreement with Paper Products and is seeking to recover loss and damages as a result of the failure of the machine to produce acceptable egg cartons. The best estimate of Paper Products' possible liability to the Board is said to exceed $500,000. The loss and damage said to have been sustained is not otherwise quantified.

12. In support of its motion for summary judgment, Paper Products relied principally upon the affidavit of its managing director, Coomaraswamy Sivandran, which was filed in support of the original motion for leave to serve the proceedings out of Australia and in the United Kingdom. Dr. Sivandran was party to most of the relevant conversations and communications relied upon in the pleading. He exhibited to his affidavit a copy of the invitation issued by the Ministry of Economic Development of the Government of Western Australia in February 1990. The invitation was entitled "Registration of Interest and Proposal for Manufacture of Egg Cartons and Other Suction Moulded Fibre Packaging Products in Western Australia". The invitation appended a document entitled "Egg Board Supply Contract and Product Specification/Requirements". It set out a number of specifications, including specifications as to the composition, weight and physical characteristics of cartons required by the Board.

13. Dr. Sivandran said that he had occasionally dealt with Tomlinsons through his involvement in the pulp and paper industry. He was aware through those dealings that Mr Watts was the managing director of Tomlinsons and that Mr Murphy was, until December 1990 or thereabouts, an engineer employed by that company. He was also aware in general terms that Tomlinsons is one of a group of companies loosely described as "the Tomlinson Group". The letterhead used by the company bore the title "Tomlinson Emery", apparently a reference to Tomlinson Emery International Ltd which Dr. Sivandran said he was told by Mr Watts is the "selling arm" of Tomlinsons. This was confirmed by a facsimile dated 30 October 1990 sent by Mr Watts to Mr John Young, whom Dr. Sivandran understands to be the Australian agent of Tomlinsons. A copy of the fax was made available to Dr. Sivandran about that time. The fax said:

"I have sent details to Dr. Sivandran of our Bank and

of the two references we discussed and I confirm that

Tomlinsons Emery is simply a selling arm of Tomlinsons

(Rochdale) Ltd and we have been selling in that name

for the past two years, prior to that all sales were

Tomlinsons (Rochdale) Ltd."

For the most part, however, Dr. Sivandran's dealings with Tomlinsons have been through Messrs. Watts and Murphy save for a short period of time early in 1990 when he dealt briefly with Mr Young.

14. Dr. Sivandran's affidavit went on to say that since February 1990 he had discussions with Messrs. Watts and Murphy in which the contents of the State Government's invitation for expressions of interest were discussed at length. They discussed in particular the type of machinery which might be required to meet the requirements of the Government as contained in the invitation, and more particularly the specifications. Mr Murphy had been advised, by a letter dated 27 February 1990 from Dr. Sivandran writing for PPI, that an invitation for expressions of interest to manufacture egg cartons had been released. A copy of the invitation was attached to that letter. A copy of the letter was sent to Mr Nigel Watts. The letter was addressed to Tomlinsons Emery International Ltd but marked for Mr Murphy's attention. It sought from the proposed equipment supplier a capability profile, a reference list of completed plants and the type of completion and performance guarantees given.

15. Subsequently Dr. Sivandran prepared a letter to the Ministry of Economic Development by way of registration of interest and a proposal on behalf of Paper Products as a joint venture between PPI and Recycling Technology Pty Ltd. At that time, as Dr. Sivandran points out in his affidavit, Paper Products had not been incorporated, although it was envisaged that it would be incorporated as the joint venture vehicle for the purpose of manufacturing egg cartons in terms of the invitation. Ultimately, Paper Products was incorporated on 11 April 1990 as set out in para.10 of the statement of claim.

16. By 30 March 1990 Dr. Sivandran said he had already commenced serious negotiations with Messrs. Watts and Murphy in relation to the possible supply of equipment that would be required to satisfy the requirements stipulated in the invitation. In the course of those conversations, he advised that a joint venture would be formed between PPI and another company for the purpose of submitting a proposal in response to the invitation. He also recalled advising Mr Watts that the joint venture vehicle would be a company name Paper Products. He followed this up with a letter to Mr Watts dated 5 April 1990 in which he advised him that a proposal had been submitted to the State Government in response to the invitation. A copy of that letter was exhibited to his affidavit. Much later, Paper Products and the Egg Marketing Board of Western Australia entered into a contract dated 8 November 1990 for the supply of the Board's full requirements of suction moulded fibre egg packaging products in accordance with the stipulations referred to in the invitation. A copy of Paper Products' agreement with the Board was exhibited to the affidavit. According to Dr. Sivandran, both Messrs. Watts and Murphy were aware, through him, of the fact that the agreement was to be entered into in those terms as he had told them so much on numerous occasions throughout 1990.

17. Through 1990 until 9 November 1990, Dr. Sivandran said he was intermittently involved in lengthy negotiations with both Messrs. Watts and Murphy. The general purpose of the negotiations related to the price and the type of machine which was required. Messrs. Watts and Murphy from time to time said to him that a complete line of machinery comprising three components, namely, a paper pulp moulding machine, a hot press and a printing machine, would be required to be working "on line" i.e. in conjunction with each other, simultaneously, to satisfy the requirements specified in the invitation. Mr Watts told him on one of these occasions that one of the problems in furnishing all three components was that Tomlinsons had itself never previously manufactured a machine incorporating hot press facilities. Two types of paper pulp moulding machine were discussed, a TR4 and a TR2. Mr Watts represented to Dr. Sivandran that the TR4 model had a maximum production of 3,000 twelve pocket egg cartons, or similar, per hour. The TR2 had a considerably smaller capacity. In relation to the hot press facility, according to Dr. Sivandran, Mr Watts stated to him in the course of several of their conversations that there would be "no problems" in Tomlinsons supplying the entire line of equipment in accordance with the Board's requirements, with a capability of producing 3,000 acceptable twelve pocket egg cartons per hour provided that the TR machine were utilised. It was proposed to do this by supplying a TR4 paper pulp moulding machine which would "feed" a hot press called a "Peerless" hot press manufactured in the United States of America by Pulp Moulding Dies Inc. and incorporating a printing machine manufactured in the United States by "Condes USA", all three components being used in conjunction with each other and simultaneously. On numerous occasions Mr Watts told Dr. Sivandran he was confident that Tomlinsons could deliver an entire line of machinery incorporating these three components which, when used in conjunction, would be able to meet the Board's requirements and produce 3,000 twelve pocket acceptable egg cartons per hour. Further, Mr Watts told him that he believed the Peerless hot press to be a tried and tested piece of equipment. The conversations took place over the telephone between Messrs. Watts and Murphy in the United Kingdom and Dr. Sivandran in Perth. On occasions, the substance of the conversations was repeated to Dr. Sivandran when he was in the United Kingdom in the course of meetings with Messrs. Watts and Murphy there.

18. Some of the representations were confirmed in writing and exchanges of correspondence were exhibited to the affidavit in that regard.

19. Dr. Sivandran said that at all times Paper Products had a choice of placing three independent orders, namely separate orders for the paper moulding machine, the Peerless hot press and the Condes printer. In a letter dated 25 October 1990, Mr Murphy said, inter alia, that if the whole order were placed with Tomlinsons:

"... we will order from the two American companies and

pay the necessary deposits to them. We, Tomlinson

Emery, will then guarantee the whole line, including

Press and Printer, entirely as stated in the contract

but with slightly adjusted delivery times..."

From his discussions with Messrs. Watts and Murphy, it appeared to Dr. Sivandran that the total price for the complete line would have been less had they placed separate orders for the three components. The incentive for Paper Products to place an order for the complete line from Tomlinsons was to obtain guarantees for the complete line from Tomlinsons. He said that Paper Products, through himself, was substantially induced into entering into an agreement with Tomlinsons because of the guarantees that Tomlinsons was prepared to furnish if an order were placed for the complete line of machinery with it, rather than three independent orders.

20. Paper Products and Tomlinsons entered into a written agreement on 9 November 1990 by which Tomlinsons agreed to supply the applicant with the three components, together having a maximum production rate of 3,000 thirty pack egg trays or twelve pocket egg cartons or similar products, for the sum of GBP931,500. A copy of the agreement which was executed in the United Kingdom was exhibited to the affidavit.

21. The machines were delivered and installed at various times between October and December 1991. From the outset, according to Dr. Sivandran, the complete line of machinery supplied by Tomlinsons gave trouble. It has never been capable of producing 3,000 twelve pocket egg cartons per hour nor were the cartons acceptable in the sense of complying with the Board's specification. A summary of the average hourly production rate of acceptable cartons was set out in para.18 of the statement of claim which Dr. Sivandran verified in his affidavit. In summary, the defects in the cartons were due to what appeared to Dr. Sivandran to be an inherent incompatibility between the TR4 machine and the Peerless hot press. The cartons produced were variously crumpled and/or so brittle as to be totally unacceptable. The Board's stipulation as to moisture content was seldom attained. The hot press broke down so frequently that there was never any time in which 3,000 twelve pocket egg cartons per hour (acceptable or not) were produced continuously. Dr. Sivandran exhibited to his affidavit a bundle of correspondence between Paper Products and Tomlinsons setting out in detail the problems that had been encountered with the equipment provided by Tomlinsons.

22. Due to Paper Products continual failure to produce egg cartons of the quantity and quality required by the Board, the Board, by a letter dated 13 November 1992, gave 30 days notice to remedy the default under its agreement with Paper Products failing which it would terminate that agreement. A copy of the Board's notice dated 30 November 1992 was exhibited to the affidavit.

23. While Paper Products has not computed all its losses, Dr. Sivandran said he could in a general sense verify that it had suffered loss and damage as a result of Tomlinson's conduct, namely loss of profit and wasted labour costs and had further incurred considerable expense to repair the equipment furnished by Tomlinsons. The Board has threatened proceedings against Paper Products for breach of contract and, while liability to the Board is not admitted, the Board has indicated that it will seek to recover moneys exceeding $500,000.

24. The application for summary judgment brought against all three respondents is brought pursuant to O.20 of the Federal Court Rules which provides, inter alia:

"1(1) Where, in relation to the whole or any part of

the applicant's claim for relief, there is evidence of

the facts on which the claim or part is based, and-

(a) there is evidence given by the applicant

or by some responsible person that, in the

belief of the person giving the evidence,

the respondent has no defence to the claim

or part; or

(b) the respondent's defence discloses no

answer to the applicant's claim or part;

the applicant may move on notice for such judgment for

the applicant on that claim or part and the Court may

pronounce such judgment and make such orders as the

nature of the case requires."

25. Given Tomlinsons approach to this litigation in which it has clearly indicated its intention not to proceed further, but to contest in the United Kingdom the enforcement of any judgment that may be awarded against it, the motion for summary judgment falls to be determined on the material in Dr. Sivandran's affidavit and the supporting affidavit from Zheng Fuhu. On the basis of that material, and given the absence of any answer to it, I am satisfied that there is evidence of the facts on which the claim is based so far as it relates to Tomlinsons. The primary cause of action relied upon by Paper Products is Tomlinsons contravention of s.52 of the Trade Practices Act 1974. That contravention is based upon representations as to the capability of the three plant components acquired by Paper Products from Tomlinsons, particularly their capability of complying with the requirements of the Egg Marketing Board and producing 3,000 twelve pocket egg cartons per hour that complied with the Board's specifications. The representation as to the capability of the Peerless hot press was also relied upon in support of that cause of action.

26. Certain of the representations were said to have been made orally in the United Kingdom but that conduct is not relied upon by Paper Products in support of the motion for judgment. Were that conduct to be invoked, this being a claim for damages under s.82 of the Trade Practices Act 1974, then consideration would have to be given to s.5 of the Act which relates to extra-territorial conduct by companies carrying on business in Australia. The question would need to be considered whether, at material times, Tomlinsons was carrying on business in Australia. Section 5 relevantly provides:

"5(1) Parts IV, IVA and V extend to the engaging in

conduct outside Australia by bodies corporate

incorporated or carrying on business within Australia

or by Australian citizens or persons ordinarily

resident within Australia.

.

.

.

(3) Where a claim under section 82 is made in a

proceeding, a person is not entitled to rely at a

hearing in respect of that proceeding on conduct to

which a provision of this Act extends by virtue of

subsection (1) or (2) of this section except with the

consent in writing of the Minister.

.

.

.

(5) The Minister shall give a consent under

subsection (3) or (4) in respect of a proceeding

unless, in the opinion of the Minister:

(a) the law of the country in which the

conduct concerned was engaged in required

or specifically authorised the engaging in

of the conduct; and

(b) it is not in the national interest that

the consent be given."

In this case, however, I accept that the making of the representations by telephone and facsimile communication to Paper Products in Australia constituted conduct by Tomlinsons in this country. The common law torts of negligent and fraudulent misrepresentation can be committed at the place where a telex conveying the relevant representation is received - Diamond v. Bank of London and Montreal Ltd (1979) 1 QB 333. Lord Denning said in that case at 345-6:

"It seems to me that in the case of fraudulent

misrepresentation, when it is made by telephone or

telex, as it was here, the tort is committed at the

place where the message is received - wherever it is

heard on the telephone by the receiver or tapped out

by the telex machine in the receiver's office."

His Lordship considered the principle logically to apply also to a negligent misrepresentation by telephone or telex. Stephenson and Shaw LJJ, who each wrote separate judgments, also agreed with Lord Denning. It is important to note that for the purposes of s.5 of the Trade Practices Act 1974 it is necessary to consider not where the cause of action arose but where the conduct relied upon took place. The cause of action for damages for a contravention of Part V created by s.82 of the Act is complete when the damage has been sustained. I am satisfied, however, adopting the approach of the Court of Appeal, that the misleading or deceptive conduct sufficient to constitute an actionable contravention of the Trade Practices Act has been shown to have been engaged in by Tomlinsons in Australia. I am satisfied on the uncontested affidavit evidence that the conduct was misleading or deceptive and that it was engaged in in trade or commerce.

27. The allegations of breach of collateral warranty and negligence are pleaded in the alternative and the claims for relief as against Tomlinson in respect of those causes of action are set up in the alternative. On that basis there should be judgment for Paper Products against Tomlinsons for damages to be assessed for Tomlinsons contravention of s.52 of the Trade Practices Act 1974. I am not satisfied that I should make the order sought that Tomlinsons' indemnify Paper Products in respect of any damages for which it may be found liable to the Egg Marketing Board. The question of any liability to the Egg Marketing Board can be raised in the assessment of damages.

28. So far as Messrs. Watts and Murphy are concerned, their liability is said to arise by virtue of their involvement in Tomlinsons' contravention through s.75B of the Trade Practices Act 1974. While a contravention of s.52 does not involve guilty knowledge on the part of the contravening party, knowledge of the relevant facts is required before accessorial liability under s.75B of the Act can be established. I invited further submissions from Paper Products on the question, but having considered those submissions and the evidence before me, I am not satisfied that the requisite state of knowledge is demonstrated against Messrs. Watts and Murphy. The motion for summary judgment so far as it relates to them will be dismissed.