Rinbridge Marketing Pty Ltd v Walsh

introduction 1 At first instance, the present appellant ("Rinbridge Marketing") sued Rinbridge Pty Ltd ("Rinbridge") and two of its directors, John Prosper Cullen, and the present respondent, Peter Thomas Walsh. Rinbridge Marketing pleaded that Rinbridge had made representations to it fraudulently and in contravention of s 52 of the Trade Practices Act 1974 (Cth) ("the TP Act"). In terms of s 75B of the TP Act, it pleaded that Mr Cullen and Mr Walsh aided, abetted, counselled or procured the contravention of the TP Act, or were directly or indirectly knowingly concerned in or a party to the contravention. 2 The action against Rinbridge was stayed because it was in the process of a creditors' voluntary winding up. The primary Judge gave judgment for Rinbridge Marketing against Mr Cullen for $560,000.00 and costs, but gave judgment for Mr Walsh in respect of the action claim against him. It is in this respect that Rinbridge Marketing appeals. The grounds of appeal are that the primary Judge erred in failing to find that Mr Walsh was knowingly concerned in the contravention by Rinbridge of s 52 of the TP Act, and in ignoring Mr Walsh's own evidence of his knowledge of the facts found to be fundamental to Rinbridge's misleading and deceptive conduct.

background facts 3 On 4 October 1991, Mr Cullen obtained a patent in relation to an electric power socket known as the "Protecta Point". The particular advantage of the product was that it was supposed to safeguard against the possibility of the electrocution of children. 4 By agreement of 28 April 1994, Mr Cullen granted Rinbridge an exclusive licence to import, manufacture and distribute the product. By an agreement of 22 June 1994 Rinbridge Marketing undertook to Rinbridge to market the product. In anticipation of that agreement and subsequently, Rinbridge Marketing spent money promoting the product, in reliance on representations as to the product's efficacy. His Honour found that Rinbridge made misleading or deceptive representations in contravention of s 52 of the TP Act, and that Mr Cullen was the author of those representations. His Honour further found that Mr Cullen knew of their falsity and was involved in the contravention. But his Honour said that Mr Walsh was "in an entirely different position" and found that he was not knowingly involved in the contravention. 5 The following more detailed outline of the background facts is taken from his Honour's reasons for judgment. 6 In May 1990, Mr Cullen, who lived in Wagga Wagga, invited several people, including Mr Walsh, to a meeting to hear his proposals for the development and exploitation of his invention. Mr Walsh also attended later meetings on the same subject organised by Mr Cullen. 7 Rinbridge was a shelf company that Mr Cullen had acquired in 1987. Mr Cullen decided to use it to exploit the patent. Capital was obtained from the issue of shares to Wagga Wagga residents. Mr Cullen was chairman and managing director of Rinbridge. Mr Walsh became a director of the company at the end of 1991. 8 During 1992 Mr Cullen visited several Asian countries to investigate manufacture of a prototype of the invention. In January 1993, three other persons were appointed as directors of Rinbridge: Gordon Saggers, Scott Breust and Glen Seymour. 9 Mr Cullen procured the manufacture of a prototype. On 5 November 1993 the New South Wales Government Office of Energy issued Certificate of Approval No 13553 in respect of a sample "Protecta Point". 10 In December 1993 Mr Cullen, on behalf of Rinbridge, ordered 20,000 sockets to be manufactured by Mai Chung Metal Works Ltd ("Mai Chung") of Hong Kong. One of the batch delivered in response to the order was evaluated from the viewpoint of safety by Qualtest Consumer Product Testing Services ("Qualtest"), a division of Woolworths Limited. Gerard Putt, Qualtest's senior technical officer, produced a report dated 3 February 1994. His conclusion was that the size, shape and angle of insertion of the probes able to contact live parts had been considerably restricted compared with commonly available socket outlets. The final sentence of Mr Putt's report was as follows: "While not providing complete protection, the item does considerably reduce the possibility of a child with a probe contacting live parts in a socket outlet." The primary Judge does not make a specific finding as to when Mr Walsh became aware of the Qualtest report. There is no evidence that he was aware of it prior to an important meeting of 2 May 1994, referred to below. No such suggestion was put to him in cross-examination. The only evidence on the point is that of Mr Walsh to the effect that he was not made aware of the report "for many months after May". 11 Peter Shanks was a salesman whom Mr Cullen asked to help Rinbridge sell the product. Mr Shanks operated through Cullshan Marketing Pty Ltd, of which he was the managing director. He interested Frank Ceh, a builder, and his younger brother, Stephen Ceh, a plumber, in the possibility of marketing the Protecta Point. 12 Mr Shanks arranged for Messrs Cullen and Walsh to meet Stephen Ceh at a hotel in Parramatta on 2 May 1994. Each of the participants in the meeting deposed to what he recalled of the discussion on that occasion. His Honour said: "Mr Walsh is said by Stephen Ceh to have offered reassurance that all problems were solved, but I am satisfied that Mr Walsh never conveyed any impression other than that he relied entirely on Mr Cullen for information about the production and performance of the product." Mr Cullen agreed he described the product as "child safe" but denied he said it was "child proof". He accepted he said it was the safest power point on the market in Australia but insisted he added "according to the Qualtest report". None of the other participants recalled him qualifying his statement in that way or, indeed, referring to such a report at all. 13 The group had lunch in a restaurant at the hotel. Stephen Ceh probed the outlet with a toothpick. Stephen Ceh, Mr Shanks and Mr Walsh recalled this, but Mr Cullen denied it happened. Stephen Ceh said he claimed he could contact the live parts of the outlet. Mr Shanks recalled Stephen Ceh making that claim, but Mr Walsh did not. His Honour said: "I am satisfied that, at the very least, Stephen Ceh did use a toothpick to probe the outlet and that, from the outset, it was apparent to Mr Cullen and Mr Walsh that he was concerned about the possibility of a child inserting a fine object into the outlet." 14 On 4 May 1994, Stephen Ceh and Mr Shanks arranged to acquire Rinbridge Marketing as a shelf company. They were appointed directors that day. On 5 May 1994, Mr Cullen wrote on behalf of Rinbridge to the Cehs and Mr Shanks confirming that pending the signing of a marketing agreement, it would be in the best interests of both parties to proceed "as if final papers were signed, safe in the knowledge that we are fully and totally committed to do so". On 9 May 1994, Rinbridge Marketing entered into a lease of warehouse premises at Wetherill Park for a term of six months. 15 The trial Judge found that Frank Ceh first met Mr Cullen and Mr Walsh on 2 June 1994. On that day Mr Cullen and Mr Walsh visited Rinbridge Marketing's premises at Wetherill Park where they met both of the Ceh brothers. Frank Ceh testified that on this occasion he expressed great concern that pins and needles could be inserted into the outlet and sought an assurance that, in addition to protection against intrusion, the outlets functioned as intended. Stephen Ceh confirmed that his brother expressed those concerns. Mr Cullen contradicted their evidence, yet said that he was going to visit the manufacturers in Hong Kong in a couple of days when any problems would be solved. 16 On 6 June 1994 Mr Shanks resigned as a director of Rinbridge Marketing, Frank Ceh was appointed as a director, and the share held by Cullshan Marketing Pty Ltd was transferred to a company controlled by the Cehs. 17 Also on 6 June, Stephen Ceh collected 2,400 socket outlets from Rinbridge's customs agent. Rinbridge's advertising leaflets were delivered to Rinbridge Marketing's warehouse. They claimed that the Protecta Point was "child safe" and was manufactured "in the interest of child protection", but Stephen Ceh said that on inspecting the socket outlets, he found he could contact the "live parts" through a hole in the plug receptacle. Over approximately the next two weeks, Stephen Ceh made complaints to Mr Cullen or, when he was in China, to his wife for transmission to him in China. On one occasion Stephen Ceh telephoned Mr Walsh who told him he should speak to Mr Cullen. On 21 June Mr Cullen returned to Australia and faxed the Cehs the next day stating, inter alia: "The power point is perfect and it cannot be faulted in any way. The locking tab has been metal faced to prevent wear and the active terminal is completely covered, so that in the event of intrusion of an object, it cannot get to the power." 18 On 22 June 1994, the solicitors for Rinbridge Marketing sent two copies of the marketing agreement executed by Rinbridge Marketing to Rinbridge's solicitors. On 6 July, Rinbridge's solicitors sent a counterpart executed by Rinbridge to the solicitors for Rinbridge Marketing. 19 Over the period from 22 June to 24 October, the Cehs expressed on numerous occasions their dissatisfaction with aspects of the product, to which Mr Cullen responded by having the product modified several times. During this period, Mr Cullen and Frank Ceh travelled together to Mai Chung's factory in Hong Kong on 12 July where they discussed with the manufacturer changes that were required. The product was "launched" at the Darling Harbour Home Show commencing on 13 August. LaterProspect County Council informed Rinbridge Marketing that tests of the Protecta Point outlets from an inspector had revealed faults. 20 On 23 October, Mr Walsh faxed Stephen Ceh advising that Mr Cullen was returning from China with modified samples "where no jamming under any adverse force occurs", but the next day, 24 October, Rinbridge Marketing gave notice terminating the marketing agreement. Mr Cullen returned to Australia on 26 October and Rinbridge subsequently arranged for all stock to be collected from Rinbridge Marketing's warehouse at Wetherill Park.