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[2003] FMCA 131
defendant. Application dismissed; judgment for the respondent on the cross claim, with damages assessed by the Registrar under Part 18 Rule 18.01(1); costs reserved, with written submissions due within seven...
The Court found that Pacific Payphones had made misleading statements about how quickly faults would be detected and addressed outside business hours, and about banks selling smart cards. But Phone Wizards did not provide enough evidence to show that those statements caused its claimed financial losses. In particular, there was no evidence from end users establishing why phones were returned, and the Court considered that poor sales and the card-selling arrangements were also significant. Phone Wizards' claim was dismissed. Pacific Payphones succeeded on its cross claim, although the amount had to be assessed and could be reduced by an appropriate set-off. Costs were left for further consideration.
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2,136 words · generated 29/09/2026
Pacific Payphones distributed French-made smart-card payphones. In June 1998 it advertised in the Newcastle Herald for an exclusive distributor in Newcastle and surrounding districts. The advertisement said the distributor could expect “Immediate cashflow make $200,000 plus p.a.” and would need “just $30,000 to get started” ([2]). Phone Wizards responded. Following discussions, the parties entered a distribution agreement. Phone Wizards installed the first phone at Tattersall’s Club and agreed to install phones it bought under the distributorship ([3]).
3 cited instruments linked from this judgment.
Phone Wizards’ allocated territory included the local government areas of Newcastle, Lake Macquarie, Maitland, Port Stephens, Singleton and Muswellbrook ([4]). The business relationship did not go well. Phone Wizards did not sell as many phones as expected, and the parties had difficulties concerning maintenance and smart-card distribution. By about September 1999, Phone Wizards had largely abandoned the agreement ([5]).
Phone Wizards’ case was narrowed during the hearing to alleged representations made in negotiations about faults, repairs and service. Its director, Mr L’Green, said he had been told that the phones were sufficiently sophisticated for Pacific Payphones to know about faults before users did, and that faults could be fixed immediately by remote programming. He also said he was told a technician would be available after hours, and that banks would eventually sell the smart cards ([10]–[13]).
Pacific Payphones disputed parts of that account. Mr Grimaldi said the diagnostic system sent information to the office, and that remote fixes were limited to software problems. He said the office operated from 9 am to 5 pm on weekdays, with hardware problems dealt with by replacing parts as necessary ([14]). The Court preferred Mr L’Green’s evidence where it conflicted with Mr Grimaldi’s, while also limiting what the engineer’s availability meant: the Court did not understand the representation to promise that the engineer would attend in Newcastle or the Hunter region at any hour ([21]–[23]).
The Court found that some of the representations were misleading, but dismissed Phone Wizards’ claim because it was not persuaded that they caused the losses claimed. It separately entered judgment for Pacific Payphones on the cross claim, with damages to be assessed by the Registrar up to $2,779 and with possible set-off for unpaid installation or maintenance work ([39]–[40]).
The Court distinguished between proving misleading conduct and proving that the conduct caused the loss for which relief was sought. It accepted Phone Wizards’ evidence that Pacific Payphones had conveyed the impression that faults could be detected and addressed after hours. The agreement referred to Pacific Payphones’ ongoing management and maintenance of the payphones, including daily monitoring and ongoing repairs ([33]). The Court treated the oral representations as clarifying those provisions, rather than as conflicting with them ([35]).
The actual service arrangement did not match the impression conveyed. Pacific Payphones’ office worked weekdays from 9 am to 5 pm, and no action would be taken outside those hours. The Court found that nothing in the agreement limited the service obligations in that way. It therefore found the fault-monitoring and remote-repair representation misleading ([35]). It accepted that the engineer would be available after hours in a limited sense, but did not consider that statement to promise that repairs would actually be carried out then ([23], [35]).
The Court also accepted that Phone Wizards had been told banks would sell smart cards. It treated this as a representation about a future matter under s 51A. Pacific Payphones denied making it and did not adduce evidence of reasonable grounds for it. The Court consequently treated it as misleading ([36]).
Those findings did not resolve causation. The Court said that evidence of maintenance problems, particularly failures to make software repairs after hours, coupled with evidence that those failures caused phones to be returned as unsuitable, could have supported relief under ss 82 and 87. But the evidence it received was not sufficient. No end users testified about their experience with the phones or why they returned them ([31], [37]).
The Court also considered the timing and content of the available material. The independent complaints the Court identified consisted of two letters dated after Phone Wizards had stopped actively promoting the phones. A letter from May 1999 said that most technical problems seemed to have been overcome and attributed lower-than-expected sales mainly to site owners not embracing the technology as quickly as expected ([19], [29]–[30]). The evidence also indicated that cards could only be sold at locations where phones were installed, while relatively few phones were sold. The Court considered sluggish sales and the card arrangements part of the explanation for the commercial difficulties ([37]–[38]).
The applicant’s evidence about its reasons for stopping sales did not satisfy the Court that maintenance failures were the cause of the alleged losses. The Court’s conclusion was not that no misleading conduct occurred. It was that the evidence did not establish the necessary connection between that conduct and the loss claimed ([38], [42]).
The judgment records an application of the Trade Practices Act 1974 (Cth), as it stood in 2003. The provisions it identifies include ss 51A, 52, 82 and 87. The Court used s 52 to assess the statements about fault detection and service, and s 51A in relation to the alleged future representation about bank sales of smart cards ([6], [35]–[36]). It considered ss 82 and 87 as the bases for relief sought, but did not grant the requested relief because causation and loss were not sufficiently proved ([37]–[38]).
The judgment’s treatment of oral statements in negotiations is tied to the particular agreement and evidence before it. Pacific Payphones relied on Seabridge Australia Pty Limited v JLW (NSW) Pty Limited [1991] FCA 134; 29 FCR 415. The judgment quotes Beaumont J’s caution about relying on oral negotiating statements where the subject has been dealt with specifically in a formal document, while noting that a different position may arise where the formal contract does not deal with the subject ([34]). Raphael FM did not simply reject that authority. He found that these oral statements particularised the agreement’s provisions for ongoing daily management and maintenance ([35]).
The judgment does not provide a survey of later statutory amendments, later cases, or the present state of Australian consumer law. It therefore does not establish what the current statutory framework is or how later courts have interpreted these provisions. Its supported contribution is narrower: on these facts, the oral statements helped explain the meaning of the written maintenance provisions, and misleading conduct did not alone establish a right to the claimed relief without evidence of causation and loss.
The judgment also mentions Horman v Distribution Group Limited [2002] FCA 219. It says Raphael FM applied propositions approved by Emmett J to guide fact-finding, but it does not reproduce those propositions ([20]). The specific content of those propositions cannot be reconstructed from this judgment alone.
At [35], Raphael FM says the oral statements “clarified what was meant by the words ‘manage and monitor on an ongoing daily basis’.” In plain English, the Court treated what was said in negotiations as explaining how the agreement’s general maintenance language was presented to Phone Wizards. The formal agreement did not, in the Court’s view, expressly limit work to business hours.
Also at [35], the Court found the representation misleading because Pacific Payphones worked “five days a week nine to five” and “nothing would happen outside those hours.” The contrast was between the impression of prompt remote attention, including after hours, and the actual absence of service outside the office’s weekday hours.
At [36], the Court said the bank-sales representation was about a future fact and that, as Pacific Payphones had denied making it, “the respondent did not adduce any evidence to suggest that it had reasonable grounds for making the representation.” The Court then concluded, “The representation is deemed to be misleading.” That passage explains the Court’s use of s 51A on the evidence before it. It does not establish that a mere allegation of a future representation will always be enough; the finding depended on the evidence and the statutory provision the Court applied.
The key passage on causation is at [38]. The Court was “not satisfied on the evidence” that Phone Wizards stopped making sales because Pacific Payphones could not maintain the equipment to the required standard. The wording is important: the Court accepted certain misleading representations, but did not find the causal link needed to support the applicant’s claimed relief.
At [42], Raphael FM captured the result as a “paradox”: he had accepted that misleading representations were made, yet did not grant relief because Phone Wizards had not satisfied him that the misrepresentations caused its alleged losses. In practical terms, establishing the conduct and establishing compensable loss caused by that conduct were separate evidentiary steps.
The reasoning is relevant to disputes where a business alleges that statements made during negotiations about support, maintenance or after-hours service were misleading, but the written contract contains broader or more general language. The judgment shows that the relationship between the oral statements and the contract’s wording may matter. Here, the Court considered whether the oral statements particularised the provisions for ongoing management and repair, rather than treating the written agreement as the complete answer ([33]–[35]).
It is also relevant where a representation concerns future events, such as a proposed distribution channel. The Court treated the claim that banks would sell smart cards as a future representation and considered whether Pacific Payphones had evidence of reasonable grounds for making it ([36]). The judgment’s analysis is confined to the alleged representation, the respondent’s denial and the evidence presented.
Most centrally, the case illustrates the importance the Court placed on evidence connecting conduct to loss. A party alleging that poor service caused customer returns or lost sales may encounter an evidentiary problem if the record contains only general assertions, particularly where end users who experienced the service do not provide evidence. The Court expressly noted the absence of end-user evidence and the lack of sufficiently specific proof about why phones were returned ([31], [37]).
The facts also show why alternative explanations may matter in a causal assessment. The Court referred to low initial sales, users’ views about card distribution and the limited places where cards could be used ([37]–[38]). Its conclusion was based on this particular record, not on a general finding that maintenance failures cannot cause lost sales.
The supplied judgment contains no later judicial treatment of Phone Wizards Pty Ltd v Pacific Payphones Pty Ltd [2003] FMCA 131. No later cases applying, distinguishing, following or questioning this decision are included in the supplied material. It would not be possible to describe subsequent treatment accurately from this judgment alone.
The judgment itself refers to two earlier authorities. It says it applied propositions from Horman v Distribution Group Limited [2002] FCA 219 to guide fact-finding, without setting out those propositions ([20]). It also considers Seabridge Australia Pty Limited v JLW (NSW) Pty Limited [1991] FCA 134; 29 FCR 415 in relation to oral negotiating statements and a formal contract ([34]–[35]). These are references within this judgment, not evidence of how later courts treated Phone Wizards.
The judgment leaves several matters unresolved because it was deciding the case on the evidence before it. First, it does not determine what a sufficient body of evidence of causation would have looked like in another dispute. It says that evidence about maintenance failures and their connection to phones being returned could have supported relief, but it does not set a general evidentiary threshold ([37]).
Second, the Court did not determine the full financial position between the parties. It referred the cross-claim damages assessment to the Registrar, capped at $2,779, and recognised that unpaid installation or maintenance work might operate as a set-off. It expressly noted the uncertainty about commissions and the current position of some phones ([39]–[40]).
Third, the judgment does not resolve the potential effect of later changes in legislation or subsequent judicial decisions. It applies the provisions as identified in its 2003 context. Any assessment of present law would require sources beyond this judgment.
Finally, the reasons record an apparent chronological inconsistency: paragraph [8] says the matter was set down for hearing on 14 October 2003, although the judgment was delivered on 11 April 2003 and describes later hearing dates in January and March 2003. The supplied text does not explain that inconsistency, so it should not be silently corrected or relied on to infer a different procedural history.
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TRADE PRACTICES - Allegations of misleading and deceptive conduct in negotiations for distribution agreement - whether representations were the cause of applicant's loss - whether sufficient evidence to substantiate claim - referral of damages on cross claim to Registrar - where conduct of parties affects discretion in costs orders.
Trade Practices Act 1974 (Cth), ss.51A, 52, 82, 87
Fair Trading Act 1987 (NSW)
Federal Magistrates Court Rules, Part 18 Rule 18.01(1)
Horman v Distribution Group Limited [2002] FCA 219
Seabridge Australia Pty Limited v JLW (NSW) Pty Limited[1991] FCA 134; , 29 FCR 415
(2) Judgment for the respondent on the cross claim with damages to be assessed.
(3) Assessment of damages to be carried out by the Registrar pursuant to Part 18 Rule 18.01(1).
(4) Costs reserved. Parties to provide written submissions within seven days as to why the proposed orders for costs should not be made final.
1. The applicant in this matter describes itself as a local phone company. According to its contemporaneous letterhead it dealt in new and used phone systems, telephone and computer cabling, call management systems, smart card payphones and radio and advertising on hold. The respondent is a company which distributes a smart card payphone manufactured in France by a company known as Schlumberger. A smart card payphone is a phone which is installed in a high use area such as a club or a service station and operates by the use of a card rather than cash.
2. In or about June 1998 the respondent advertised in the Newcastle Herald seeking distributors for their payphones and smart cards. The advertisement, which is exhibited to the affidavit of Mr Grant L'Green, is in the following form:
3. The applicant responded to the advertisement and over the next few weeks visited the respondents at their premises in Sydney where certain discussions took place. The parties then entered into a Distribution Agreement for payphones and the purchase of smart cards. The applicant's director Mr L'Green impressed the respondents with his technical ability and by agreement the applicant installed the first payphone in the Tattersall's Club in Sydney on behalf of the respondent. It was agreed that the applicant would install all of the payphones which it purchased under the Distributorship Agreement and the applicant also installed other phones on behalf of the respondent.
4. The areas in which the applicant distributed the phones were the areas of the Councils of Newcastle, Lake Macquarie, Maitland, Port Stephens, Singleton and Muswellbrook.
5. The business relationship between the applicant and the respondent did not go well. The applicant was unable to sell as many payphones as was expected, there were issues as to maintenance and there were issues as to the distribution of the smart cards. By about September 1999 the applicant had all but abandoned the agreement between the parties.
6. In these proceedings the applicant makes a claim against the respondent of misleading and deceptive conduct contrary to s.52 of the Trade Practices Act 1974 (Cth) (the "Act") and seeks relief pursuant to ss.82 of the Act and 87(2)(b)(a) and 87(2)(c). In the Statement of Claim attached to the application there was also reference to the Fair Trading Act 1987 (NSW) but those claims were not pressed. During the course of the hearing the actual claims made and relief sought were narrowed. The applicant confined its claim to certain alleged misleading statements made during negotiations for the contract concerning the rectification of problems with the equipment and availability of service for them.
7. I am obliged to set out the rather unfortunate history of these proceedings because it provides the background to the hearing itself. On reflection and at a distance in both time and space from the hearing, these proceedings show themselves to be a good example of how easy it is, with the best intentions when following the objects of the Federal Magistrates Court Act 1999 found in s.3(2)(a) to operate as informally as possible, to be left with a case which had not been properly pleaded or properly particularised, evidenced by affidavits that have not been properly drawn in proper form and not subject to proper provisions for discovery. If these procedures had been followed the case would have taken less time and in all probability produced a result more satisfactory to both parties. If this is a criticism of the parties, they are not solely at fault. I must bear some of the blame for not insisting on the formalities which I now believe would have made the case so much easier to try.
8. The matter first came before me on 15 July 2002 where I made directions that the matter proceed by way of pleadings and that the applicant's statement of claim and final orders sought be its pleading. The respondent did file a very short defence which was essentially a denial and a cross claim for the sum of $2,889.54 under the Distribution Agreement. The applicant/respondent to the cross claim provided a defence to the cross claim again by way of denial. The matter was set down for hearing on 14 October 2003 with evidence to be called by way of affidavit but on that day the respondent did not appear for reasons which were not satisfactory but which are not relevant to this judgment. I made certain orders including an order requiring the parties to mediate and set the matter down for hearing on 17 January 2003 at Newcastle. The mediation order was not complied with. One of the reasons why the matter was sent to mediation was so that the parties could narrow down the issues between them. In this way, if the mediation failed, the trial would be shortened by the exclusion of extraneous material. Each party would have had a better idea of what the other was claiming by way of claim and cross claim. Inevitably, legal matters would have been discussed and inappropriate claims abandoned.
9. None of this had happened when the case came on for hearing again on 17 January 2003. Much of the first morning was taken up with quite reasonable objections to the applicant's affidavit. Because I considered the failure to attend the mediation to be the fault of the respondent, who had also not attended the first hearing, I permitted evidence to be given orally, although I allowed the respondent the opportunity to request an adjournment if the applicant's evidence related to matters upon which he needed to take detailed instructions and provide rebuttal. As it turned out no such adjournments were necessary although time was given during the course of the hearing. The matter was not concluded on 17 January 2003, it continued in Sydney on 10 March 2003. I ordered that the parties prepare submissions prior to that hearing and submissions were received from the applicant. The respondent then called its evidence and its witness was cross examined. At the conclusion of the evidence I ordered that the parties provide me with written submissions. The respondent's written submissions were received on 1 April 2003.
10. Mr L'Green responded to the advertisement by telephone. He claimed to have had a number of telephone conversations with representatives of the respondent including Mr Grimaldi, Mr Irvine and Mr Lobb. On one occasion he attended the respondent's office at Brookvale. In these telephone calls and at the meeting he was told a number of things about the payphone operation, of which, two alleged representations form the basis for his claim. The first statement which was said to have been made by Mr Grimaldi at a meeting in Brookvale, was that:
"These phones are so clever we will know before the customer knows that they are malfunctioning."
"These phones are far more reliable than a coin phone. The supplier is a French company and they are sold all over the world and their reliability is such that you should expect no problems with them."
11. The applicant deposed that Mr Grimaldi also made the following statements concerning maintenance of the phones. In response to the question from Mr L'Green:
"It will be fixed immediately by remote programming from our computer."
"The technician has a mobile phone and is available."
12. The alleged representations relating to the smart cards concern their method of distribution. The applicant was told that at the present time (when no machines had been sold to distributors) smart cards were only available from the respondent but it was intended that smart cards would be made available through banks. The applicant alleges Mr Irvine said to him words to the following effect:
"Phone cards will be sold at the site of phones by the site owners until banks make smart cards available to the public."
13. These conversations form the crux of the applicant's case. It argues that the respondent did not provide the service and maintenance promised and it never arranged for smart cards to be sold other than through the sites at which the phones were installed.
14. Mr Grimaldi, who gave evidence for the respondent, gives a different version of these conversations. He said that he told Mr L'Green that the telephones had a fault diagnosing system which passed a message through to the computers at their office indicating a problem. If it was purely a software problem it could be fixed from the central computer. Mr Grimaldi said that there was a maintenance engineer and that in respect of hardware problems parts would be replaced as necessary. Examples of hardware problems given by Mr L'Green were people pouring beer into the machine or breaking a handset. Mr Grimaldi's evidence was that he told Mr L'Green that his office only worked from 9.00 to 5.00p.m. Monday to Friday and that no service could be carried out after hours. Mr L'Green's evidence was that the availability of service after hours was vital for this type of business because machines were installed in places where, the maximum use would be made of them after hours and at weekends e.g. workers clubs or petrol stations and machines would not be acceptable to customers if faults could not be dealt with immediately.
15. The applicant's attempts to market the payphones were not very successful. It installed phones in a number of hotels, clubs and service stations in the Newcastle/Hunter Valley district. Correspondence passed between the parties. The applicant suggested methods of improving sales to the respondent (see letter 3 May 1999 Annexure "E" to Grant L'Green's affidavit 5 April 2002).
16. In cross-examination of Mr Grant L'Green the following exchange occurred at [T47-48]:
"C: You knew that it was a new product didn't you?
C: And you knew that the market was untested in Australia, didn't you?
C: And at the time of entering into the agreement you expected that there would be some difficulties that had to be worked through in order to have the product to be successful, didn't you?
W: I guess I should've expected there may be some, yes.
C: Well, you didn't think there would be no difficulties, did you?
W: No, nothing's ever real smooth sailing along the way.
C: And what I'm suggesting to you is that for the initial period the maintenance of the payphones occurred reasonably satisfactory, do you agree with that?
W: No, there were problems right from the beginning.
C: You'd certainly largely overcome technical problems by early 1999, hadn't you?
W: I don't know, '99, June '98, no, there was still technical problems at that point.
W: In 1999 there were still some technical problems at that point.
C: You see, what I'm suggesting to you that that was quite clearly the case, that most of the technical problems seemed to have been overcome by mid 1999?
W: Are you referring to technical problems with the phone or service issues with Pacific Payphones?
W: Technical problems with the phones were still there but they were not nearly as prevalent as they had been in the beginning.
C: What I'm suggesting to you is that between May 1999 and August 1999 when you ceased attempting to sell the phones or cards, you were engaged in a series of correspondence with the respondent about the price of their product and about marketing schemes you thought that the respondent should be engaged in, do you agree with that.
17. The applicant relied on a letter which it had written to the respondent on 1 May 2000 which complains about after hours service in respect of which it says:
"I don't need to tell you that, clubs, pubs and service stations are, by their nature, busiest when we are all closed. This is why Phone Wizards have a 24 hour paging service provided by Link Paging at the minuscule cost of $40.00 per month. Whoever is on call that week takes the pager home. Our answering machine gives the pager number. We only get paged after hours about once a week but one in five of those is for a card phone problem. I have had three or four occasions where I was paged on a Friday or Saturday night and couldn't get in touch with Pacific Payphones until Monday morning and so the payphone was out of service all weekend. This is not satisfactory. I have spoken to Phillip about this a few times and we never got an answer. We have also had trouble with slow response to fixing of problems with payphones even during business hours. Examples of this are:
Shamrock Hill Community Centre, Carries Place, Eaglereach.
Other problems include phone calls and faxes not being returned, not only to us, but to customers."
18. Mr L'Green agreed under cross examination that this letter had been written one year after he had stopped actively promoting the product. Mr L'Green argued that he had stopped promoting the product because he was not comfortable selling a product which was not going to give his customers the service that they required.
19. At paragraph 25 of Mr L'Green's affidavit he deals with the receipt of a telephone call on 13 July 2001 from the Clubhouse Hotel at Maitland advising that the payphone was not working and that it had not been fixed by 17 July 2001. At paragraph 27 he makes reference to a telephone call received from the Caledonian Hotel at Maitland advising that the phone was not working and had not been fixed by the next day. The instances quoted above appear to me to be the only instances of complaints which had been admitted into evidence apart from two letters annexed to his affidavit. The first is annexure M dated 16 January 2001 and the second is annexure P dated 27 September 2001. At annexure E there is a letter from the applicant to the respondent dated 3 May 1999 which says:
Most of the problems seen to have been overcome, but some damage has been done in the past, and it is important that no further problems arise.
The main reason for this is simply that site owners have not embraced the new technology as quickly as we all expected."
20. In Horman v Distribution Group Limited [2002] FCA 219 at [33] Emmett J approved of a number of propositions which I considered should guide me in my findings of fact. The propositions set out there were applied by me in this case.
21. The evidence given by Mr L'Green was disputed by Mr Grimaldi. During the course of his cross examination Mr Grimaldi agreed that some time after the events in question he had attended a seminar at which the question of gold payphones was discussed and he had indicated that these phones would not be used in future by Telstra because of concerns that Telstra had with the year 2000 syndrome. This was not the information which Mr Grimaldi had received from Telstra and I came to the view that on this occasion he had put a slant on the information which was intended to suggest that gold payphones would not be working after 31 December 1999. Some of the cross-examination of Mr Grimaldi led me to a view of the witness that he was a man who would exaggerate some statements in the interest of a sale. I was not impressed by the demeanour of Mr Grimaldi in the witness box and, where their testimonies differ, I would tend to prefer the evidence of Mr L'Green.
22. I accept the evidence of Mr L'Green that when he attended the respondent's offices he was told that any faults in the phone would be known to the respondent's organisation before it was known to the user because of the online fault identification system, and I further accept that it was represented to Mr L'Green that this meant that the type of problem that could be rectified by remote action at the respondent's premises would be rectified on an after hours and weekend basis.
I accept Mr L'Green's evidence that he asked about the availability of a maintenance engineer and was told that this person would be available after hours and carried with him a mobile phone or pager.
I am satisfied that Mr L'Green asked these questions because I accept his evidence about his qualifications and experience in providing maintenance and technical services and believe that these are reasonable questions for such a person to have asked. I was not impressed with Mr Grimaldi's response that he made it clear to Mr L'Green that his business only operated 9.00 to 5.00p.m. five days per week. Mr Grimaldi accepted that the self diagnostic characteristics of the payphones was an important selling point. I do not believe that he made it clear to Mr L'Green that if a telephone went out of order at 5.30p.m. on a particular day there would be no one there to effect the necessary repairs at the respondent's premises until 9.00a.m. on the following day or longer at weekends.
23. In relation to the maintenance engineer, whilst I accept Mr L'Green's evidence that Mr Grimaldi indicated that he would be available after hours, I do not believe that this translates to very much more than him being told of the nature of a particular problem and possibly providing some advice on the phone to either the applicant's company or the premises at which the payphone was installed. I do not understand Mr L'Green's evidence as suggesting that the engineer would be available to attend in Newcastle or the Hunter Region at all hours of the day, night or weekends.
24. I do not think it is disputed, and in any case I so find, that Mr L'Green is experienced in the installation and maintenance of telephonic equipment. Mr L'Green installed the first Pacific Payphone at Tattersalls and he installed the payphones which he purchased under the agreement and others on behalf of the respondent. I am afraid the evidence is unclear as to whether he maintained the phones. If he did, his maintenance would have been limited to replacing hardware items such as damaged handsets because all software problems were dealt with through the online fault identification system. I find that the applicant ceased trying to sell the phones or cards after about August 1999 although he would have continued to do so if the respondent had agreed with his proposals for encouraging sales. These form the basis of much of the correspondence between the parties. The respondent was not prepared to give the discounts or offer the facilities suggested by the applicant including deals on call rates.
25. I accept that Mr L'Green has twelve payphones sitting in his premises, most of which he removed from customer's premises.
26. I find that the amount agreed to be paid under the agreement was $16,692.00 and that of that sum $2,779.00 remains outstanding.
27. I find that the agreement is constituted by the document annexed to the affidavit of Phillip Grimaldi sworn 7 August 2002 being annexure "A", together with the document annexed to the affidavit of Grant L'Green sworn 5 April 2002 excluding the first three pages.
28. There are a number of matters upon which I do not believe I have evidence or sufficient evidence to satisfy me of the allegations made.
29. The first item relates to complaints. The only independent evidence of complaints being made by organisations at whose premises these phones were installed are the two letters which I have previously described. Both these letters are dated after the date upon which the applicant agrees he ceased to actively promote the sale of the payphones. This is important because it is the applicant's case that the real reason why he ceased to promote the payphones was their unreliability and the lack of available service. In his own evidence, Mr L'Green tells me that the phones were unreliable and that service was unobtainable. At [T49] he says in cross examination, in response to a question, that he had stopped promoting the product because he had had a dispute:
"The primary reason I stopped promoting the product was because I was not comfortable selling a product which I knew was not going to give my customers the service that they required, a reliable service, there were many other issues with Pacific Payphones but no, the primary reason was for one I just said, not what you said.
I can't sell somebody a product that I know is not going to work well. I am employed as a technician."
30. At [T50] the following exchange takes place:
W: You also haven't mentioned well, you wouldn't be aware that I have twelve payphones in my shop most of which I have had to remove from customer's premises because they were dissatisfied with them and I have had, in many cases, to repay the customer what they pay for the phone and my company is out of pocket there also."
These explanations do not sit easily with the letter of 3 May 1999.
31. No witnesses were called to give evidence of their experience with the Pacific Payphones or their reasons for returning them.
32. The financial information is also in an unsatisfactory state. I gather from the submissions from counsel for the applicant that it is claiming that it paid $9,000.00 in money to the respondent. It is not clear from the respondent's submissions whether it accepts this figure or it believes that the figure is $3,000.00. It is possible that the respondent accepts that $3,000.00 cash was paid and the respondent gave credit to the applicant for approximately $6,000.00 for installation work carried out by the applicant on the respondent's behalf. The applicant claims a refund for twelve payphones which he values at $17,160.00. They are probably the twelve payphones referred to in the extract from the transcript above. I cannot understand, and it has not been explained to me, how payment was made for those twelve payphones. Were they included in the original $16,000.00 odd dollars? Were the payphones paid for directly by the end users? I think not because there is annexed to the affidavit of Mr Grimaldi dated 12 August 2002 a series of invoices to Phone Wizards which includes one invoice for two telephones.
33. I found that certain representations were made to the applicant by the respondent before the applicant entered into the agreement. In relation to the maintenance obligations of the respondent in respect of the payphones the agreement says in its recitals:
... Further with its computerised payphone network management system Pacific Payphones Pty Limited is engaged in the ongoing day to day management and maintenance of each smart card payphone."
And at paragraph 3 under the heading Supply of Product and Services the agreement states:
"... Also in accordance with the location management and maintenance agreement Pacific Payphones Pty Limited will supply on a regular ongoing basis or as required smart cards to be used in the smart cards payphone. Further it will in accordance with those agreements manage and monitor on a ongoing daily basis the operation of each smart card payphone and provide ongoing repairs and maintenance for the duration of the respective agreements."
I was never shown a copy of a location management maintenance agreement.
34. The respondent submits that I should follow Seabridge Australia Pty Limited v JLW (NSW) Pty Limited [1991] FCA 134; 29 FCR 415 and find that oral statements made in the course of negotiating a formal contract will not found a claim under s.52. In that case at [21] Beaumont J said:
"The courts should exercise caution in invoking provision such as s.52 based upon things said, or not said, in oral discussion in the course of negotiations which lead to a formal document or agreement being drawn up. Much will depend on the subject matter of the alleged representation. If the oral statement bears upon a matter which has been dealt with specifically by the parties in a formal document or contract, the courts, in my view, should ordinarily be reluctant to interfere by setting aside or altering the formal instrument or contract in the absence of proceedings for rectification of the written instrument purporting to evidence the real agreement. Where, however, an oral statement bears upon a subject not dealt with in the formal contract, the position may be different."
35. To my mind the representations which were made concerning the maintenance and repair of these payphones namely "We will know if the phone is faulty before the customer knows" and "It will be fixed virtually immediately by remote programming from these computers here" constituted a representation which had the effect of particularising the formal provisions of the contract. The representations clarified what was meant by the words "manage and monitor on an ongoing daily basis". I am satisfied that the representation was misleading because the evidence from Mr Grimaldi was that his firm worked five days a week nine to five and that nothing would happen outside those hours. That is not the impression obtained from the words used in the conversations and nothing in the contract itself so limits the service obligations. I am satisfied that Mr L'Green considered this an important matter and that the existence of the automatic fault monitoring system was something that induced him to enter into the contract with the respondents. I do not have quite the same satisfaction in regard to the representations made about the service mechanic. I think the most that was being offered by the representations was the ability to call the service mechanic after hours. He might have been able to suggest a method of repair but there was no representation that repairs would be put into effect by him after hours.
36. I am also satisfied that there was a representation that banks would be selling the smart cards. This seems to me to be a representation as to a future fact in respect of which s.51A applies. The respondent denied making the representation and therefore did not adduce any evidence to suggest that it had reasonable grounds for making the representation. The representation is deemed to be misleading.
What is the effect of the findings of false and misleading representations?
37. If the applicant had been able to adduce evidence of problems with the maintenance of these payphones (in particular the failure of the respondent to effect any software related repairs after hours) and that this was a cause of phones being returned to the applicant as being unsuitable for the purposes for which they were sold, then I would have had little difficulty in providing the applicant with relief under ss.82 and 87. In a case such as this where only a few of these payphones were sold I would have expected affidavit evidence from the end users. None was forthcoming. The evidence I did get was in the form of generalised statements from Mr L'Green and copies of some letters which he admitted were written long after he ceased to actively market the payphones. The evidence which I do have indicates that the sales of these payphones was sluggish from the beginning. End users did not like the way in which the cards were sold. They can only be sold through places where the phones were installed. The evidence is that they were an expensive method of making telephone calls. Because not a lot of phones were sold there was not a lot of places in which a card could be used.
38. Under cross-examination Mr Grimaldi informed the court that there were approximately twelve to fifteen distributors spread around Australia, of whom there were four in New South Wales and there were only four or five in June 1999. I don't think even Mr Grimaldi would consider that these phones are a runaway success. Mr L'Green made proposals which he considered reasonable for marketing the payphones but they were not accepted by the respondent. To my mind the real reason why the applicant ceased to perform the contract was that it became unperformable insofar as it was unable to effect any more sales. I am not satisfied on the evidence that it ceased to be able to make such sales because of the inability of the respondent to maintain the equipment to the standard required by the end users which it knew to be clubs, hotels and service stations.
39. In the light of the findings which I have made the applicant's case must fail. But the respondent has made a cross claim. The amount claimed was $2,889.54. However, I gather from the respondent's submissions that it is now claiming that only $2,779.00 is owed by the applicant to the respondent under the terms of the contract. There are letters passing between the parties and in particular from the respondent to the applicant suggesting that the respondent no longer expects the applicant to be selling any payphones nor does it expect the applicant to be carrying out such maintenance of those phones as it was previously carrying out as the respondent's agent. I believe that there may be one or two payphones in operation and that the applicant would have been entitled under the agreement to some commission in respect of the sales of smart cards for them. In the cross examination of Mr L'Green in which he agreed to the sum of $2,779.00 he did so:
"Aside from moneys outstanding from the last twelve months or so for commissions and aside from commissions payable in the future for approximately eight payphones." [T49]
40. I have no evidence what the current position is. In the circumstances I can only order that the calculation of the respondent's damages on the cross claim be limited to a maximum of $2,779.00 and be referred to the Registrar for calculation pursuant to Part 18 Rule 18.01(1) of the Federal Magistrates Court Rules. But I note that the applicant believes that it was unpaid for carrying out installation and maintenance work. To the extent that this was not reflected in calculating the $2,779.00 it would be entitled to a set off. The end result could be that the respondent owes the applicant moneys.
41. I set out below my reasons for making a costs order in this matter.
I will grant the parties seven days from the date of the handing down of these reasons to provide me with written submissions as to why my proposed orders for costs should not be made final.
42. It should be clear from these reasons that the orders which I have made constitute something of a paradox. I have accepted the evidence of the applicant, I have accepted that the respondent made false and misleading representations contrary to s.52 of the Trade Practices Act. But I have not provided the applicant with the relief which it seeks because it has not satisfied me that the misrepresentations were the cause of its alleged losses. I have been critical of the respondent and in particular of its failure to attend the hearing on the first occasion and its disregard of my orders about mediation. On the other hand, following the admission by the applicant's director that it owes the money claimed in the cross claim (less those deductions to which I have previously referred) I have given judgment for the respondent on its cross claim. I have already made the respondent pay the costs thrown away by the first adjournment. I cannot punish it twice, but I do feel that the failure to attend the mediation robbed the parties of a real chance to settle this action and at the very least to concentrate their minds so that when the case did come on for trial only the relevant matters were dealt with and they were properly particularised and understood by each side. In these circumstances I believe that the appropriate order for costs is that the applicant pay one half of the respondent's costs of the claim. The costs of the cross claim should be awarded by the Registrar after she has calculated who owes what to whom. The order which I made in respect of the costs thrown away stands so that no reimbursement is required.
I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of Raphael FM
Phone Wizards Pty Ltd
Pacific Payphones Pty Ltd [2003] FMCA 131
Application dismissed; judgment for the respondent on the cross claim, with damages assessed by the Registrar under Part 18 Rule 18.01(1); costs reserved, with written submissions due within seven days.