Federal Court of Australia|1992-11-17|Before: Heerey J, Hill JJ

Re Dominelli Ford (Hurstville) Pty Limited and Ferdinando Dominelli v Karmot Auto Spares Pty Limited [1992] FCA 550; (1992) 110 ALR 535 (1992) 38 FCR 471 (17 November 1992)

Re: DOMINELLI FORD (HURSTVILLE) PTY LIMITED and FERDINANDO DOMINELLI

Trade Practices - enforcement and remedies - s 52 Trade Practices Act 1974 (Cth) action - whether trial judge entitled to draw certain inferences from the evidence as presented at trial - whether factual findings by trial judge permitted relief granted - whether Gould v Vaggelas (1985) 157 CLR 215 applies to s 52 actions - whether an intention to mislead is an essential requirement for Gould v Vaggelas to apply in a s 52 context.

Gould v Vaggelas (1985) 157 CLR 215

Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd and Anor (1991) 22 NSWLR 389

Counsel for the Appellants: Mr A.R. Emmett QC with Mr Bell

1. The appellants, within 14 days, bring in short minutes order varying the primary Judge's order as to restitution of property by the respondent to the appellants;

3. The appellants pay the costs of the respondent.

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

BEAUMONT, FOSTER AND HILL JJ. This is an appeal from a judgment of Heerey J given on 14 May 1992. His Honour made declarations that the first applicant ("Dominelli Ford") had, in trade or commerce, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive contrary to s 52 of the Trade Practices Act 1974 (Cth) and s 42 of the Fair Trading Act 1987 (NSW). He also made a declaration that the second applicant ("Dominelli") had procured, induced, aided or abetted or been knowingly concerned in contraventions of s 52 of the Trade Practices Act and s 42 of the Fair Trading Act by Dominelli Ford.

2. His Honour ordered that Dominelli Ford and Dominelli pay the respondent ("Karmot") $865,313 made up as indicated in his judgment. He also ordered that Karmot return to Dominelli Ford and that Dominelli Ford accept the return of "the following quantities of automotive water pumps: WPA 47L: 3010; WPA 47N: 4553; WPA 90: 4574; WPA 91: 4173".

3. He further ordered that an agreement between Karmot and Dominelli Ford be varied "insofar as is necessary to enable (Dominelli Ford) to deal in the said pumps returned and to use the name 'Chedele'". Dominelli Ford and Dominelli were ordered to pay Karmot's costs.

4. The history of the transactions between the parties which led to the litigation at first instance may be stated briefly.

5. Dominelli Ford carried on business in Hurstville, Sydney, as a dealer in Ford motor cars. It conducted a spare parts business in association with its main business. This aspect of its business had been built up by a former employee, a Mr McGregor, from about 1980. As part of this business it sold "after market" parts under the name Chedele. When Mr McGregor left employment with Dominelli Ford in early 1989, Dominelli, as managing director, decided to sell that part of the spare parts business which consisted of the sale of Chedele parts. He was also desirous of obtaining funds which he wished to use for the purpose of Dominelli Ford entering into a Volvo dealership.

6. Karmot carried on a business of merchandising automobile spare parts. Mr David Hutchins ("Hutchins") was its managing director. He became interested in the purchase of the Chedele business. After negotiations, to which we shall make reference later, Karmot paid the major portion of the purchase price, $690,170, on 30 June 1989. A further amount of $15,000 was paid on 23 October 1989. A formal written agreement was entered into on 12 July 1989. His Honour found that this was entered into "at Mr Hutchins' request, primarily for the purpose of obtaining a covenant against the use by the vendor of the name Chedele." His Honour further found that the agreement "used a printed form appropriate to the sale of a business, but the consideration attributed to the sale was the nominal sum of one dollar." His Honour found, that despite the use of this printed form the transaction was "in substance" one for the sale of goods "namely the Chedele stock held by Dominelli Ford". In this regard, the evidence makes it clear that it was agreed between Hutchins and Dominelli that nothing should be paid for the goodwill of the Chedele business. All that was to pass from Dominelli Ford to Karmot was the Chedele stock. What was to be paid by Karmot to Dominelli Ford was, in effect, an amount of money being the equivalent of the cost price of this stock to Dominelli Ford.

7. The stock consisted, to some extent, of automotive water pumps. These were the items in which Hutchins was particularly interested. Additionally, however, there were a very large number of disparate items of motor vehicle spare parts which also passed on the sale.

8. Although the contract was "in substance" one for the sale of the Chedele stock and there was no sale of goodwill as such, some of the usual incidents of a sale of a business did take place. The agreement of 12 July 1989, entered into after the price had been paid, was, in form, an agreement for a sale of a business, although the price for the sale was $1.00 and this was apportioned to the transfer of the business name. Stock in trade was estimated at $700,000, with a special provision obviously introduced to deal with the situation where the price of the stock when correctly calculated should exceed that sum. The price, when calculated, did not exceed that sum and, although the condition referred to was the subject of discussion in the argument of the appeal, it does not, in our view, have any ultimate bearing upon the matters that fall for decision. On the same day, Dominelli entered into a deed imposing upon him the obligation not to compete with Karmot in respect of the business transferred to Karmot. This was a covenant in restraint of trade and was expressed to continue for a period of three years. Thus, although, Karmot's money was being paid, in effect, for Dominelli Ford's Chedele stock there was more to the transaction than a simple sale and purchase of ascertained goods. At the very least a business name was transferred and a restrictive covenant taken in respect of competition with the business carried on under that name.

9. The negotiations between Hutchins and Dominelli leading up to the sale were conducted in early April 1989. It was during these negotiations that Dominelli allegedly made representations, partly express and partly implied, to Hutchins, the content of which representations and their effect were the subject of dispute in the proceedings. It was Karmot's case that the representations were false and reliance upon them entitled it to have the whole transaction set aside, with consequential orders that the purchase price should be refunded to Karmot, upon Karmot returning all unsold stock to Dominelli Ford with appropriate allowance in respect of stock which Karmot had been able to sell.

10. The learned trial judge found in favour of Karmot. He ordered the return of the purchase price. He also made awards in respect of consequential damage suffered by Karmot. In ordering the return of goods from Karmot to Dominelli Ford, however, he made orders only in respect of the pumps already referred to. These were the pumps remaining from the original stock purchased, there having been some sales made by Karmot. His Honour, however, made no order for the return of the large amount of other spare parts which had passed on the sale and which accounted for a substantial portion of the purchase price. It is acknowledged on the part of Karmot that his Honour should also have directed the return of these items. Karmot has, at all times, been ready and willing to return them and holds them ready for return at this time. Whatever the fate of other aspects of this appeal, it is clear that his Honour's judgment must be corrected to take account of this apparent oversight.

11. The relevant portions of Karmot's Further Amended Statement of Claim read as follows:-

"3. In or about April, 1989 there were negotiations between the

Applicant and the First and Second Respondents concerning

the purchase by the Applicant from the First Respondent of a

business primarily comprising water pumps for motor vehicles

("the Business").

4. In the course of such negotiations and for the purpose of

inducing the Applicant to purchase the said business, the

First and Second Respondents represented to the Applicant

that there was an exclusive distribution agreement between

the First Respondent, and the Chinese manufacturer of the

water pumps.

...

5. In the course of such negotiations and for the purpose of

inducing the Applicant to purchase the said business the

First Respondent represented to the Applicant that some

pumps had been returned to the Chinese manufacturer because

of faults but that the pumps had now been re-conditioned by

the Chinese manufacturer and were now better than new ones.

...

6. In the course of such negotiations and for the purpose of

inducing the Applicant to purchase the business, the First

Respondent represented that the monthly sales in respect of

the business were $60,000.00 - $90,000.00 per month."

12. Shortly before the hearing, as a result of, apparently, the late discovery by Dominelli Ford of significant documents, the following paragraphs were added:-

"5A. In or about April 1989, at the time of the negotiations

between the Applicant and the First and Second Respondents,

the First and Second Respondents were aware that the First

Respondent had had continuing disputes with the Chinese

manufacturer with respect to faulty water pumps.

5B. In or about April 1989, at the time of the negotiations

between the Applicant and the First and Second Respondents,

the First and Second Respondents were aware that there were

defects in pumps which had been rectified by the Chinese

manufacturers.

5C. Further, and in the alternative, in April 1989 the First and

Second Respondents did not know whether the pumps, which had

been rectified by the Chinese manufacturer, had been

properly rectified.

5D. In or about April 1989 the First and Second Respondent

failed to inform the Applicant of the matters referred to in

paragraphs 5A, 5B or 5C.

5E. The Applicant relied upon the failure of the First and

Second Respondents to inform it of the matters referred to

in paragraph 5D, and was thereby induced to enter into an

agreement to purchase the business on or about 12 July

1989."

13. Further relevant portions of the statement of claim are:-

"7. At the time that each of the representations referred to in

paragraphs 4, 5, 5A, 5B, 5C and 6 hereof was made to the

Applicant by the First Respondent and Second Respondent and

at all material times thereafter the Applicant believed that

each of the representations was true and the Applicant was

induced thereby to enter into an agreement to purchase the

business on or about 12 July 1989.

...

11. At the time such representations were made each of them were

untrue.

PARTICULARS

(a) At the time when the Second Respondent on behalf of the

First Respondent represented to the Applicant that there was

an exclusive distribution agreement between the First

Respondent and the Chinese manufacturer of water pumps the

said exclusive distribution agreement had been cancelled by

the Chinese manufacturer.

(b) The First and Second Respondents failed to reveal to the

Applicant that the First Respondent was still in dispute

with the Chinese manufacturer with respect to the faulty

water pumps in April, 1989.

(c) At the time when the first Respondent represented to the

Applicant that the monthly sales of the business were

$60,000.00 - $90,000.00 per month, the monthly sales were

not of that amount, or alternatively, at the time when the

First Respondent made the aforesaid representation with

respect to monthly sales the First Respondent did not have

had (sic) reasonable grounds for making the said

representation.

12. The making of such representations by the First Respondent

and Second Respondent constituted conduct that was

misleading or deceptive or likely to mislead or deceive, and

was a breach of S.52 Trade Practices Act 1974 (Cth), and

S.42 Fair Trading Act 1987 (NSW).

12A. The failure of the First and Second Respondents to inform

the Applicant of the matters set out in paragraphs 5A, 5B

and 5C constituted conduct this was misleading or deceptive

or was likely to mislead or deceive and was a breach of s.42

(sic) Trade Practices Act 1974 (Cth), and s.42 Fair Trading

Act 1987 (NSW).

13. The Second Respondent:

(a) procured;

(b) induced;

(c) aided and abetted; and

(d) was knowingly concerned in each of the contraventions

referred to in paragraphs 12 and 12A hereof."

14. The defence put all matters in issue and the case at first instance proceeded on this basis.

15. His Honour found in favour of Dominelli Ford and Dominelli in respect of the case based upon the alleged representation as to an exclusive distribution agreement and also in respect of the case based upon the alleged representation as to monthly sales figures. He found, however, for Karmot in respect of the case based upon the other representations. These representations all concerned that part of the stock purchased which comprised automotive water pumps of Chinese manufacture.

16. Dominelli Ford and Dominelli appeal to this Court against his Honour's decision. The notice of appeal, as originally filed, contained many grounds, seeking to canvass all aspects of his Honour's decision. At the hearing, however, all grounds were abandoned except those that related to the relief granted by the trial judge. In essence, it was submitted on behalf of the appellants that the case did not warrant more extensive relief than orders setting aside the part of the agreement relating to the defective water pumps and requiring that the appellants should receive them back and return the appropriate percentage of the purchase price. It was submitted, substantially, that the evidence did not permit of the making of findings which would base the wider relief granted at trial.

17. The appellants relied upon the following grounds of appeal:-

"5. His Honour failed to take into account sufficiently the

quantum of products that had purported defects and further

failed to adequately or at all take into account such

quantity in determining the discretionary orders of the

Court.

6. His Honour erred in finding that the quality of the goods

and the reliability of future supplies were important.

...

9. His Honour erred in finding that the First Appellant's

assurance as to the quality of those products would be

critical to a purchaser in the position of the Respondent.

...

12. His Honour erred in finding that it was at the Second

Appellant's insistence that the Respondent purchase the

whole Chedele line.

...

15. His Honour erred in that there is no evidence that the

reliability of CMC as a manufacturer which would supply

products of good quality and properly replace or rectify the

occasional defective products was critical to the whole

venture from the point of view of the Respondent.

...

17. His Honour erred in finding that fifty percent of the goods

supplied to the Respondent had been unsaleable.

18. There is no evidence upon which to draw the inference that

had the true position been disclosed (without an admission

that the true position had not been disclosed) the

Respondent would not have entered into the transaction at

all.

19. His Honour erred in finding that confidence in the

reliability of the supplier was of fundamental importance."

18. We turn then to consider his Honour's findings, his reasoning and the attack made upon them by the appellants within the confines of these grounds of appeal.

19. His Honour was more impressed with Hutchins as a witness than he was with Dominelli. He accepted the evidence of Hutchins on critical matters. During negotiations on 3 April 1989 Hutchins had been told by Dominelli Ford's Sales Manager, Mr Gardner, that there was a problem with water pumps imported from China in that "the interference between the bearing shaft and the hub were incorrect at manufacture and they are now being replaced". His Honour accepted, on the basis of Hutchins' evidence, that Hutchins' main interest in the Dominelli Ford Chedele stock was in the water pumps. Hutchins, later in the day after receiving this information from the manager, questioned Dominelli himself. His Honour found that the following conversation took place:-

"Mr Hutchins asked:

'Why have pumps been returned to China?'

and Mr Dominelli replied:

'The pumps have been returned to the factory because

of a fault. These are now being returned reworked.

Some of the pumps on the stock list have not yet

arrived back into stock. David, these pumps have been

reconditioned by the factory and are now better than

new ones.'"

20. The trial judge, in relation to this statement of Dominelli, said:-

"In my opinion this was a representation as to an existing

fact, namely the then present condition of the pumps which

had been returned. Also in its ordinary meaning it was not

confined to the hub or any particular fault, but extended to

the general condition of the pumps. Further, it was more

than a mere puff. Dominelli Ford was a seller of imported

manufactured products and its assurance as to the quality of

those products would be critical to a purchaser in the

position of Karmot. Therefore I accept Mr Hutchins'

evidence that he did in fact rely on this statement."

21. No challenge is made to these findings of his Honour by the appellants, provided, as we understand it, that the representation is to be taken as being confined to the stock being sold. This approach on the part of the appellants is consistent with their overall submission that the transaction should simply be viewed as one between the vendor and purchaser of particular goods.

22. His Honour found that Dominelli's representation, even if its content were confined to the quality of the reconditioned and returned pumps was untrue. He found that in April 1989 the true position in relation to the water pumps of Chinese manufacture and Dominelli Ford's problems with them was as follows:-

"Out of 10,000 WPA 47L and WPA 47N pumps which had been

returned to CMC (the Chinese manufacturer) on 30 March 1988,

only 900 of the former had been returned (this occurred on

30 January). On 29 March Mr Dominelli sent a fax to

Inter-Revco (the manufacturer's agent) thanking that firm for

their positive response 'to resolving our problems'. The

fax stated:

'In answer to your question as to the acceptability of

the replaced pumps to date, it is too early to tell

conclusively as we are unsure about the number that

has physically been put on vehicles, but Glen Gardner

tells me that they appear to be OK to date. Please

forgive me if I have sounded threatening or abrupt in

the past, you must understand that 18 months is a long

time to replace faulty products. The loss of

confidence has been very damaging, not to mention the

loss of face we have suffered and the financial strain

it placed on our cash flow.'

23. On 18 April Mr Gardner stated in a fax to Inter-Revco:

'The 900 WPA 47L modified water pumps still faulty.

The hub is pressed too low on shaft. Please stop

further shipment of these pumps.'

Shortly afterwards, on 24 April 1989, Mr Dominelli faxed

Inter-Revco:

'No-one has responded to our fax re discovery of the

WPA 47L modified pumps still faulty, the hub is

pressed too low, please advise status of shipments.'

Therefore I find that the representation about the success

of the rectification work was untrue at the time it was made

because as at 3 April the respondents had at best a

tentative expectation that the rectification had been

satisfactory, which was something different from the firm

assurance given to Mr Hutchins. Moreover by the time Karmot

paid $690,170 on 30 June, the representation had been, to

the knowledge of the respondents, rendered quite untrue.

But they did nothing to retract or qualify the assurance

that had been given. The correspondence between Dominelli

Ford and CMC and its agent (unbeknowns at the time to

Karmot) showed that the problem was regarded as significant,

aggravated of course by the long delay which had occurred."

24. We do not understand that these findings of his Honour are challenged. What is said of them, however, on behalf of the appellants, is that they are of essentially narrow effect. They relate, the argument runs, to the condition of the pumps which had been returned to China for reconditioning, which pumps constituted only a relatively small proportion of the items purchased. That being so, it is said that the relief granted was too wide and should have been restricted to appropriate orders in relation to the defective pumps.

25. It is clear, however, that the trial judge accorded a much wider significance to the representation set out above when it was viewed in the context of the whole of the discussions and negotiations between the parties. These, as he found, indicated that Hutchins was interested in far more than the mere purchase of the Chedele stock from Dominelli Ford. He was interested in the ongoing reliability of the supply of pumps from the Chinese manufacturer ("CMC"). He was also interested in the ongoing quality of the goods supplied and the ability of the manufacturer to rectify defects. When these matters were taken into account, the representation required a wider construction. He dealt with it in the following terms:-

"Karmot's case is that although the question of defects and

rectification was raised in the way I have already

indicated, what was said was in itself misleading and, more

importantly, was reassuring and necessarily conveyed the

impression that there had been no other problems with the

pumps and that CMC was a reliable manufacturer and

supplier."

26. His Honour found these additional elements of the representation to be manifestly false. He found that documents which had been the subject of further discovery by Dominelli Ford only shortly prior to the trial and which had not been seen by Hutchins at the time of the negotiations "revealed a history of serious disputes between Dominelli Ford and CMC (the Chinese manufacturer) concerning the quality of pumps supplied and the lack of prompt and satisfactory rectification."

27. It is clear that there were a number of such documents. His Honour made particular reference to a fax which had been sent by Dominelli to CMC only a month prior to negotiations with Hutchins. It is set out, at some length, in his judgment. It contains very significant complaints as to the quality of water pumps supplied and as to failure promptly to attend to rectification of defects in pumps returned for this purpose.

28. After setting out in considerable detail particular matters of complaint, the fax makes the following general assertion:-

"Our problem, is simply this, we returned 9243 water pumps

on 30/3/88 and eleven months later we are advised that only

20% of these pumps, 2000 in number, have been rectified to

date, and which we received, late January, 1989.

Similarly in June 1988, 10,000 water pumps were found to

have faulty hubs and, nine months later, only 10% of these

hubs, 1,000 in number, have been returned to us and was

received, late January, 1989.

This company cannot continue to satisfy its customers on the

current service received from China to this date.

Our clients have lost confidence and our people have lost

confidence in China's ability to supply good products or to

have faulty products rectified promptly.

...

As you can appreciate, we trade in a very competitive

market, and supply and service is of paramount importance

and this delay, has cost our company, loss of face, and also

loss of business confidence and has put a huge strain on our

financial resources, not to mention, the huge loss of

goodwill, and, confidence, in the ability of China to

compete, in the Australian market.

It is, just not that simple, to cease doing business, as we

have, a continuing legal and moral obligation, to honour the

warranty, and be able to service, the 40,000 water pumps,

which we have already paid for, at this date."

29. The trial judge referred to the fact that the Chinese manufacturer replied by fax disputing some of Dominelli's assertions. This provoked a reply from Dominelli by fax of 7 March 1989 which, inter alia, stated:-

"I am also at a loss to understand why you keep disputing

the number of pieces returned.

It has been confirmed by you that the WPA 47L and WPA 47N

pumps were of faulty manufacture. Therefore it is only a

matter of time before the pumps that were sold and not as

yet returned to us will have to be eventually replaced under

our warranty conditions ......

...

Mr Yao Min Da, I do not wish to sound monotonous, but the

bottom line is simply this.

We have to date paid for 40,000 units of which only 50% were

any good. We have paid out approximately Aust$230,000 in

unsaleable stock putting enormous pressure on our cash flow

and incurring an interest cost of Aust$97 per day."

30. Dominelli, on the same day, sent a fax to Inter-Revco which contained the following statement:-

"Mr Lie Wan Tion consider our position, of the 40,000 pumps

manufactured and paid for by us to date by Mr Yao Min Da's

factory, no less than 20,000 pumps were faulty. Fifty per

cent to date proved to be unsaleable.

To suggest that we continue to order more pumps before the

current problems are overcome and confidence in the product

restored would be foolhardy and irresponsible to say the

least......

It is now 18 months since we paid for the 5,000 WPA-47L,

5000 WPA-47N pumps and approximately 11 months since we paid

for 5000 WPA-91 and 5000 WPA 55M pumps.

You must agree that this is an intolerable situation, one

that must be addressed urgently and honourably." (Writer's

emphasis)

31. The evidence also established that Dominelli sought to enlist the aid of the Australian Embassy in China by sending, on 23 March 1989, a fax which enclosed the correspondence sent to CMC with the comment that it "should give you a fair idea about my frustrations to date." Also on 29 March 1989 he sent a fax to Inter-Revco, part of which has already been set out, and in which he reiterated that 18 months was a long time to effect the replacement of faulty products and stressed that damaging loss of confidence had occurred.

32. Between the date of the representation to Hutchins (3 April 1989) and the date of payment of the bulk of the purchase price (30 June 1989), there was further correspondence from Dominelli in relation to the Chinese pumps. On 7 April 1989 he complained by fax to the Australian Trade Commission in Shanghai in strong terms. After setting out the history of his complaints, he stated:-

"If the Chinese are allowed to get away with and not be

responsible for their lack of quality control it would be

paramount to allowing them the opportunity of obtaining

money under false pretences, which is downright criminal."

33. This fax also raised the question whether the balance of 10,000 pumps supplied might well not prove to be faulty and require replacement. It appears that, in fact, this problem eventuated. There is a further fax in which the complaint was made that "the 900 WPA 47L modified water pumps were still faulty and that further shipment should be stopped". Further correspondence containing complaints on the part of Dominelli Ford, up to 23 June 1989, is referred to in his Honour's judgment. We do not need to make further reference to these matters. It is abundantly plain that, before and during the negotiations with Karmot, Dominelli held the view, amply justified on the evidence, that the Chinese pumps were of poor quality and that the supply and rectification procedures were unreliable. It is clear, also, that there must have been considerable doubt as to the quality and saleability of pumps held in stock by Dominelli Ford. Dominelli, himself, recognised the prospect that these might need rectification or replacement.

34. The failure by Dominelli Ford to make disclosure of these problems with the pumps and the effect of that failure upon Karmot was dealt with by his Honour in the following passage:-

"On Mr Dominelli's evidence (affidavit sworn 26 November

1991 par 12) Mr Hutchins was only interested in the water

pumps. It was at Mr Dominelli's insistence that Karmot

purchased the whole Chedele line. This was a substantial

new long term venture for Karmot in which the reasonable

expectation would be for future purchases from CMC once the

Dominelli Ford stock was exhausted. Such purchases would

need to be paid for in advance by letter of credit. The

market into which Karmot was to sell was a highly

competitive one. Defects would be likely to emerge when

pumps were being used on vehicles in circumstances causing

great inconvenience. It would not need many complaints by

end users for retailers and wholesalers to discard Chedele

pumps and other products in favour of competing goods.

The conclusion to be drawn is that the reliability of CMC as

a manufacturer which would supply products of good quality

and promptly replace or rectify the occasional defective

product was critical to the whole venture from the point of

view of Karmot.

In my opinion Dominelli Ford's conduct was such as to induce

a belief in Karmot that CMC was a manufacturer of the

required reliability. As the correspondence clearly shows,

that conduct was misleading and deceptive. Fifty per cent

of the goods supplied had been unsaleable. There had been a

history of unsatisfactory and frustrating performance by CMC

resulting in a loss of confidence both by Dominelli Ford's

customers and by that company itself.

I draw the inference that had the true position been

disclosed Karmot would not have entered into the transaction

at all; cf Gould v Vaggelas (1985) 157 CLR 215 at 236.

There was no compelling need for it to do so. It was a

willing but not anxious purchaser. Confidence in the

reliability of the supplier was of fundamental importance."

35. These findings are attacked by the appellants. In the first place, it is submitted that the evidence would not justify a finding that Hutchins was only interested in the water pumps and purchased the whole Chedele line at Dominelli's insistence. The short answer to this submission is that Dominelli's own evidence supports this finding as does Hutchins' testimony. Hutchins, undoubtedly, considered that he could make use of the other parts, but he was primarily interested in building up that part of the business which was involved in the purchase and sale of automotive water pumps. There is also abundant evidence to support the finding that Hutchins contemplated future purchases of pumps from CMC once the stock currently being purchased from Dominelli Ford was disposed of. Indeed, the evidence indicates that Dominelli undertook to take steps to put Karmot in contact with the Chinese manufacturer with a view to further business. In our view, his Honour was amply justified in finding that Hutchins was interested in continuing trade with the Chinese supplier and, indeed, performed financial calculations based upon this expectation as part of his general considerations as to whether the Dominelli Ford stock should be purchased. The evidence further justified acceptance that Dominelli was well aware that Hutchins had this ongoing interest in CMC as a reliable supplier of pumps of good quality. The submission that Dominelli reasonably concluded that Hutchins had no interest in the reliability of the manufacturer or in the quality of goods other than those that were being sold and that, therefore, there was nothing relevantly misleading in failing to disclose the history of problems that he had experienced, is simply not supported by the evidence.

36. The main attack made on his Honour's findings related to his drawing of the inference that "had the true position been disclosed Karmot would not have entered into the transaction at all..." It is clear that this finding was the basis for his Honour's setting aside the whole of the contract and ordering the return of the purchase price. The appellants' submission was that the evidence did not permit the drawing of the inference.

37. Ultimately, this submission was based upon the absence of any direct evidence in the case from Hutchins as to what he would have done had the course of dealings between Dominelli Ford and CMC in relation to the defective pumps in fact been disclosed to him in the course of the negotiations. It was submitted that the Court could not infer, in the absence of such evidence, that Hutchins would not have gone ahead with the purchase.

38. It was conceded that Hutchins had not been asked, and he gave no evidence, as to what his attitude to the transaction would have been had he been informed of the problems Dominelli Ford had been experiencing with CMC. Specifically, he gave no evidence in his affidavits or orally that he would not have gone ahead with the transaction had he been appraised of those matters.

39. On behalf of the appellants it was submitted that this omission was fatal to the drawing of the inference. The fact that Hutchins could have given this evidence but did not, it was contended, should, in the circumstances of the case, have precluded the drawing of such an inference. It was pointed out that his Honour, in declining to find reliance upon the representations referred to above as to monthly sales figures and the existence of an exclusive dealing arrangement with the Chinese manufacturer, was influenced by the fact that Hutchins gave no direct evidence of such reliance. It was submitted that similar considerations should have militated against the drawing of the inference of reliance in the area of the case now under consideration. However, we do not consider that much weight can be placed upon this submission. It is clear that other matters to which he makes reference, inclined his Honour against the drawing of the inferences of reliance on the representations as to exclusive agreement and sales figures. Whether or not he drew those inferences was particularly a matter for his Honour. We are satisfied that failure to draw those inferences sheds no significant light on his decision to draw the present inference.

40. Moreover, it must be noted that the trial judge had available other material from which the inference could be drawn that Hutchins would not have caused Karmot to enter into the purchase if he had known the facts about the prior problems with the Chinese supplier. His Honour found, and there was material to support the finding, that Hutchins was primarily interested in the pumps and that he only agreed to take the other items because Dominelli wished him to do so and he could see that he might be able to make some use of them. It is clear enough that were it not for his interest in the pumps he would not have been interested in the transaction at all. Moreover, there is evidence, obviously accepted by his Honour, that Hutchins wished to expand the pump side of Karmot's business and could see the ongoing connection with the Chinese manufacturer as being a means of so doing. It is clear that he made calculations as to the viability of the purchase based upon the continued supply of saleable pumps from the Chinese source. Furthermore, Dominelli made the offer, which was accepted by Hutchins, to promote Karmot's connection with the Chinese manufacturer whilst in China on a visit which he was about to undertake. This was all material upon which the relevant inference of reliance could be based.

41. Moreover, we are satisfied that his Honour was entitled to rely upon the reasoning of the High Court in Gould v Vaggelas (1985) 157 CLR 215. Wilson J (at 236) in a well known passage, sets out the relevant principles as follows:-

"1. Notwithstanding that a representation is both false

and fraudulent, if the representee does not rely upon it he

has no case.

2. If a material representation is made which is

calculated to induce the representee to enter into a

contract and that person in fact enters into the contract

there arises a fair inference of fact that he was induced to

do so by the representation.

3. The inference may be rebutted, for example, by showing

that the representee, before he entered into the contract,

either was possessed of actual knowledge of the true facts

and knew them to be true or alternatively made it plain that

whether he knew the true facts or not he did not rely on the

representation.

4. The representation need not be the sole inducement.

It is sufficient so long as it plays some part even if only

a minor part in contributing to the formation of the

contract."

42. Although Gould was a case involving the tort of deceit, we are of the opinion that these principles have equal relevance in cases based upon alleged breaches of s 52 of the Trade Practices Act 1974 and equivalent State legislation. Notwithstanding a submission to the contrary made on behalf of the appellants, we do not consider that an intention to mislead on the part of the representor is an essential requirement for the bringing into play of these principles. Accepting, as we do, that the relevant representations as to reliability of supply and quality of product were made in the present case, then the inference of inducement and reliance could readily be drawn by his Honour and by this Court in accordance with the second and fourth of the principles enunciated by Wilson J.

43. Although direct evidence of reliance might have been obtained by the appropriate questioning of Hutchins, we do not regard the absence of this evidence as fatal in the sense that it necessarily precludes the finding of reliance. Indeed, as the information as to the prior problems with the supplier had been withheld from Hutchins, any question as to what he would have done had it been disclosed to him, would necessarily be hypothetical. As such, the answer, in itself, might well be regarded as carrying little weight and being essentially self-serving. In this regard the case appears to be essentially different from that considered in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd and Anor (1991) 22 NSWLR 389. In any event, we are satisfied that Gould provides clear authority for the course taken by the trial judge. We concur in the inference that he drew.

44. The appeal must therefore be dismissed with costs except to the extent that his Honour's judgment must be corrected by the making of appropriate orders for the return of the other items of stock already referred to. Pursuant to discussions that occurred during the course of argument, we adopt the course, then foreshadowed and agreed to, of leaving to the parties the task of considering what orders would best effect restitutio in integrum in the circumstances that now obtain. We direct that the appellants bring in short minutes of such orders within 14 days of today's date.

Re Dominelli Ford (Hurstville) Pty Limited and Ferdinando Dominelli v Karmot Auto Spares Pty Limited [1992] FCA 550;

At a glance

Court

Decision date

Before

Source

Judgment (72 paragraphs)

Re Dominelli Ford (Hurstville) Pty Limited and Ferdinando Dominelli v Karmot Auto Spares Pty Limited [1992] FCA 550; (1992) 110 ALR 535 (1992) 38 FCR 471 (17 November 1992)

Parties

Legislation Cited (3)

Cases Cited (4)