Supreme Court of SA|1999-08-06

TECHNILOCK (AUST) P/L & ORS v MONDAMI P/L & ANOR No. SCGRG-96-1859 Judgment No. S320 [1999] SASC 320 (6 August 1999)

Appellants entered into a business arrangement with respondents - representations made by appellants in relation to a locking system - documents admitted into evidence at trial. Whether documents were inappropriately admitted into evidence - business records - consideration of s 34C(2)(a), s 45a and s 45b of Evidence Act 1929 (SA) - hearsay material admitted without objection - consideration of the weight to be attributed. Whether there were evidentary deficiencies in the respondents case - whether the respondents had proved their case - consideration of principles where trial judge's findings of fact are challenged - consideration of principles enunciated in Jones v Dunkel. Whether plaintiff Tomkins joined the project as a result of representations made by defendant Bacchiaz - whether the involvement of other parties broke the chain of causation. Whether the representations were assertions as to a future event - whether the provisions in the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (SA) applied in the circumstances. Whether the failure to disclose the appellant's true status was a case of misrepresentation by silence. Proof and mode of assessment of damages - consideration of s 82 (Cth) and Fair Trading Act 1987 (SA) - computation of damages - mitigation.

Evidence Act 1929 (SA) s 34C(2)(a), s 45a, s45b, referred to.
The Queen v Calabria (1982) 31 SASR 423;
Ryan & Ors v ETSA & Ors (No 2) (1987) 47 SASR 239;
Casley-Smith & Ors v F S Evans & Sons Pty Ltd and District Council of Stirling (No 1) (1988) 49 SASR 314;
Devries & Anor v Australian National Railways Commission (1992-1993) 177 CLR 472;
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) & Ors [1999] HCA 3; (1998-1999) 160 ALR 588, applied.
Sianis & Anor v Barlow & Ors (1987) 48 SASR 469;
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, considered.
Fair Trading Act 1987 (SA) s 56;
Trade Practices Act 1974 (Cth) s 52, referred to.
Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31;
Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd (1997) 69 SASR 288;
Commonwealth Bank of Australia v Mehta & Ors (1991) 23 NSWLR 84, applied.
Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd & Ors [1987] FCA 332; (1988) 78 ALR 193;
Thompson v Mastertouch TV Services Pty Ltd (1977) 15 ALR 487;
James & Ors v Australia and New Zealand Banking Group & Ors [1986] FCA 41; (1986) 64 ALR 347, considered.
Fair Trading Act 1987 (SA) s 84;
Trade Practices Act 1974 (Cth) s 82, referred to.
Wardley Australia Ltd v Anor v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514;
Marks & Ors v GIO Australia Holding Ltd & Ors [1998] HCA 69; (1998) 158 ALR 333;
Gould & Anor v Vaggelas & Ors (1985) 157 CLR 215;
Yorke v Ross Lucas Pty Ltd [1982] FCA 180; (1982) 69 FLR 116, applied.
Walker & Ors v Hungerfords & Ors (1987) 49 SASR 93, considered.

Counsel: MR N MORCOMBE QC WITH MR J MORCOMBE - Solicitors: N MINICOZZI

Respondents TECHNILOCK (AUSTRALIA) PTY LTD, HEINZ KEIMEIER, AND CLIFF TOMKINS:

Counsel: MR R WHITE QC - Solicitors: PIPER ALDERMAN

OLSSON J In this matter the appellants, who were the defendants at first instance, appeal against a judgment entered by a single judge of this Court against them on 2 February 1999. The judgment was entered in the sum of:

(1) $677320 in favour of the respondent Technilock (Australia) Pty Ltd ("Technilock");

(2) $112769 in favour of the respondent Heinz Keimeier ("Keimeier"); and

(3) $70674 in favour of the respondent Cliff Tomkins ("Tomkins").

In these reasons I will refer to the first named appellant as "Mondami" and the second named appellant as "Bacchiaz".

There are many grounds pleaded and relied upon. It is convenient to defer detailed consideration of these for the moment.

Mondami was, at all material times, an incorporated entity, which had its registered office in Brisbane and carried on a business of marketing security products. Bacchiaz was a director and shareholder of that company and seems, also, to have been a principal executive of it. He was a graduate electrical engineer.

Some time in 1989 an acquaintance, Bolzani, showed him a prototype of what was said to be a new concept security lock cylinder being developed in Italy by a person called Loretti. Loretti later brought a corporate body known as Rielda srl ("Rielda") into existence in Rome, to manufacture locks and keys using the new technology ("the Rielda lock system"). It later seems to have transferred its office to Milan.

A unique feature of the Rielda lock system was that it was designed in a manner which permitted the owner to change the lock setting and key without the need for the services of a locksmith.

Each lock was to be supplied with a set of three keys. Two of these ("the slave keys") were to open the locks and the third enabled the owner to change the lock combination ("the change key"). The concept envisaged that, when the change key was inserted in the lock at a certain angle, the internal mechanism of the lock rearranged itself and could then be rekeyed with a new change key. Other slave keys and change keys could be purchased separately as required.

The precise sequence of relevant events as between Rielda and Mondami is not entirely clear. However, on 6 November 1989, the former signed an informal document which authorised the latter "to negotiate all sales and commercial transactions". It then went on to certify that Mondami was "in fact the exclusive agents for Australia and New Zealand, for 'RIELDA' Interchangeable Lock Art 002 and keys". This was clearly, no more than an authority at will.

It was not until 22 July 1994 that a formal "Contract of Agency" was entered into between Rielda and Mondami. This purported to appoint Mondami general and sole representative of Rielda for Australia and New Zealand in respect of Rielda cylinder locks with interchangeable key and any other lock/key that might be produced by Rielda.

Provision was made for the possibility of direct orders being placed by end customers with Rielda, in which event a commission of 15% of the net price of the goods sold ex-factory was to be paid by Rielda to Mondami. Mondami was authorised to appoint sub-agents for the sale of Rielda products.

The Contract of Agency contained a performance clause which obligated Mondami to achieve sales of not less than $500000 during the first year, with steadily escalating values in succeeding years. Breach of that term entitled Rielda to terminate the contract.

The contract was entered into for a term of five years, with the possibility of semi automatic extension for a like period.

It is stating the obvious to say that any party entering into a sub-agency arrangement with Mondami, after entry by it into the Contract of Agency, was entirely dependent upon due discharge by the latter of the performance clause obligations for its security of tenure. Prior to that time Mondami had no legal authority, vis-a-vis Rielda, other than an agency at will.

Between 1989 and late 1993 Mondami took steps to promote the Rielda lock system, both within Australia and also elsewhere. During that period Rielda agreed to pay Bacchiaz, on its behalf, 12.5% of sale price in respect of any sales resulting from the promotional activities.

Both Keimeier and a person named John McNicholl ("McNicholl") were, independently, friends of Bacchiaz. In late 1993 he had discussions with each of them separately concerning the possibility of the formation of a consortium to finance the erection of an entity to market the Rielda lock system in Australia. There was some conflict in evidence as to who initiated certain of the negotiations which ensued, but that does not appear to be of particular significance for present purposes.

There was also a substantial contention between the relevant witnesses as to what was represented by Bacchiaz concerning the Rielda lock system at that time and subsequently; and also the nature of the relationships between Bacchiaz / Mondami and Rielda.

In the event the learned trial judge rejected Bacchiaz as a witness of credit and preferred the accounts of Keimeier, McNicholl and Tomkins on all relevant factual issues. He said that the latter seemed to him to be honest and reliable in what they said, and that, having regard to relative demeanour and general impression, he preferred them to Bacchiaz.

Additionally, he felt that, in particular, the attempted challenge by Bacchiaz of the expertise of the witness Cherry (details of which he recited in his reasons) redounded strongly against the former's credit. Indeed, he went so far as to say that "I believe hardly a word Bacchiaz said unless he be corroborated by other evidence ... I do not find Bacchiaz a credible witness."

The learned trial judge found that Bacchiaz made similar representations to both Keimeier and McNicholl. Critical amongst these were that:-

(3) it had about five million or "millions of" possible combinations.

I take the learned trial judge also to have accepted that, by implication, the appellants represented to the respondents and McNicholl that, the former were "in effect one with Rielda". He seems further to have accepted that it was additionally represented that Mondami was in a position, on an unqualified basis, to secure any sub-agency arrangement to Technilock until the relevant patent rights expired on 25 November 2002.

The learned trial judge did not make definitive findings as to all representations averred in the statement of claim. Nevertheless, it is at least implicit that he was satisfied that it was represented by Mondami that the Rielda lock system was, functionally, a good quality operating product, as a high security system.

In late 1993 Mondami had commissioned the preparation, by KPMG Peat Marwick, of an Investment Proposal in relation to the marketing of the Rielda lock system in Australia. This was dated 22 November 1993 and comprises exhibit P3. Copies of this material were given by Bacchiaz both to McNicholl and Keimeier in December 1993, when they were each in Brisbane.

There are two points which must be noted about the proposal.

First, a formal brochure forming portion of it described the Rielda lock system and specifically represented that:-

"The RIELDA CK cylinder is designed to RESIST:- Forcing due to a heavy metal tool through the key hole. Drilling with strength equal or inferior to Hrc 30 - Hrc 60 is available on request. Optical or mechanical reading of the inside mechanisms. Easy opening with different tools (picks, different keys, vibrators, etc)."

(I understand from counsel that the expression "CK" is a generic description and means "Change Key".)

The evidence indicated that, properly construed, this representation was intended to convey that all locks possessed resistance to a drilling strength equal or inferior to Hrc 30, but that an increased resistance up to Hrc 60 was available, if required. [It was said from the bar table that Hrc is probably an acronym for "High Resistance Compound".]

I do not accept the contention of Mr Morcombe QC, of senior counsel for the appellants, that the text on page 328 of exhibit P3 (AB Vol 11 p 503), properly read, was intended to convey that the LO3 cylinder came in two types - one with no special anti-drill device at all and one with an anti-drill device. This is quite inconsistent with the plain representation made in the documentation at pages 2 and 3 of the same exhibit (AB Vol 11 p 477-8) which indicates that all LO3 cylinders have a "cylinder Protection Anti-drilling Device" and that all resist drilling with a strength equal or inferior to at least Hrc 30. That construction is, of course, consistent with the oral representations found to have been made by Bacchiaz.

Second, as appears from AB Vol 11 p 505, the Mondami price list discloses a substantial variety of system models. Two of them of direct, illustrative, interest for present purposes are models 203 and 403. There is a significant unit price difference between them. The latter is the more expensive and is said to be "complete with a special anti-drilling device in hardened nichel [sic] plated steel ... ", whereas the former makes no reference to this aspect. The only reasonable inference clearly arising from the price list is that one model has the upgraded anti-drilling feature and the other does not. In cross examination (T299) Keimeier agreed that this was the irresistible inference, but said that he did not focus on the difference between the models at the time, in light of what had been said to him. However, that is not to say that it is inferred that one model has no substantial anti-drill capacity at all.

As a consequence of the discussions held by them with Bacchiaz and considering the investment proposal, Keimeier and McNicholl decided to invest in a venture to market the Rielda lock system. They entered into negotiations with Mondami, through Bacchiaz, with a view to evolving mutually acceptable heads of agreement to cover the arrangement. They also purchased Technilock in January 1994, as a shelf company, to be a corporate vehicle to carry the venture into effect. Keimeier and McNicholl were its first directors.

In all Keimeier invested $186030 and McNicholl invested $255000 in the enterprise.

Discussions as to the precise form of the heads of agreement continued over a period of some months, there being a dispute as to a performance clause sought by Mondami relating to the minimum value of stock required to be purchased per year by Technilock.

The agreement, in its final form, called upon Technilock to pay $250000, by instalments, to Mondami for the exclusive distribution rights in relation to the Rielda lock system. Although the finally settled heads of agreement bear the date 7 April 1994, it seems that they were not finally executed until mid-August of that year. This, it will be recalled, was shortly after Mondami had consummated its own formal Contract of Agency with Rielda.

Tomkins, who knew Bacchiaz on a social level, was not involved in the venture at this stage. His involvement began to develop after he had a conversation with Bacchiaz in or about November or December 1994. This occurred, as he described it, in a "social context" (T463). It was during this conversation that Tomkins mentioned that he was frustrated with his then present employment. Bacchiaz informed him that he was aware of a company (ie Technilock) which was involved in locking systems and that it was searching for a General Manager. He provided Tomkins with McNicholl's details.

Tomkins then contacted McNicholl and mentioned to him that he was interested in managing the business. McNicholl arranged a demonstration of the locking system for Bacchiaz. It was during this demonstration that Bacchiaz provided Tomkins with the Heads of Agreement, a sales report prepared by a Roland Harrison ("Harrison") and the Investment Proposal.

After initial discussions with Harrison and a consideration of the Investment Proposal prepared for Bacchiaz, Tomkins expressed disinterest in the project. However, the matter was further pursued by Bacchiaz with him.

Mr Morcombe QC sought to contend that Tomkins ultimately agreed to join the project not as a result of any representations made by Bacchiaz, but as a consequence of the later discussions with Keimeier, McNicholl and Harrison - to which Bacchiaz was not a party.

In my opinion, such a submission cannot be reconciled with the acceptance by the learned trial judge of Keimeier, Tomkins and McNicholl as witnesses of truth.

The evidence revealed that detailed discussions were held by Tomkins with Keimeier, McNicholl and Harrison on 16 and 17 January 1995. These involved a review not only of the Investment Proposal originally prepared for and supplied by Bacchiaz, but also a series of budgetary calculations prepared and/or developed during those discussions quite independently of Bacchiaz. Tomkins eventually agreed to participate in the venture.

He actually took over responsibility as Manager of Technilock as from about 10 March 1995. He contributed a total of $171000.

Tomkins testified that, in the course of his initial discussions with Bacchiaz, the latter represented to him:-

(1) that the Rielda locks were undrillable and almost unpickable; and

(2) that the system was a unique, engineered system.

He was supplied with a copy of the same Investment Proposal documentation as had been given to Keimeier and McNicholl.

It was the evidence of Tomkins that he thought that the system was a good opportunity, especially in the housing area and with rented buildings.

However, having spoken with Harrison and studied the Investment Proposal, Tomkins told the former that he did not consider the budget forecasts achievable and that he was not interested. When he made similar statements to Bacchiaz, the latter urged him to meet with the others and discuss his concerns. He therefore participated in the January meeting.

Tomkins testified that, following an abortive telephone call by him to Australia Post, which Bacchiaz asserted was a potential customer for the Rielda lock system, the situation was as follows:-

"Q. Having received that phone call then from Mr McNicholl, can I ask you what was your state of mind then about the product and the forecasts and predictions that had been made. First of all the product. A. Well the product, up until then the product, as far as I was aware, was good. It was still a good concept. There was no problems with it. It was, as John Bacchiaz had told me, it was a good product. It was a new innovative product. I had no doubts at all. No-one had said it wasn't a good product. Q. Did you rely on what you were told by Mr Bacchiaz about the product. A. Certainly, I made my decision to go ahead with it, I had concerns with the budget that was being put through. From what John Bacchiaz was telling me, the product was good. I believed him as well. From what I could see it was a good product. I thought there were a lot of opportunities. I was a good concept."

He told the learned trial judge that, during the early part of 1995, Bacchiaz had telephoned him about four times to enquire as to his intentions and whether he had given notice to his then employer.

It was further clear, on Tomkins' evidence that the capacity of Mondami to give an ongoing, unlimited exclusive right of sub-agency to Technilock, as indicated by Bacchiaz, was also an important factor.

In response to a question asked of him by the learned trial judge he affirmed that it was Bacchiaz who had "originally whetted [his] interest in this whole thing" and that he had maintained that interest right through.

In light of that material the inescapable conclusion was that, at the very least, the original representations made by Bacchiaz to Tomkins at all times remained a substantial operative causative factor in his decision to invest in the Technilock venture. This was not a situation where it could be said that the involvement of Keimeier, McNicholl and Harrison had "broken or dislocated" the chain of causation. (See Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd & Ors [1987] FCA 332; (1988) 78 ALR 193 at 242-243 ("Elders") and the authorities therein referred to.)

Technilock was, initially, managed by Keimeier, but it transpired that his experience was not adequate for the task. At the suggestion of Bacchiaz, Harrison was employed as sales manager and joined Technilock as from about 14 March 1994. Both were thus involved in the negotiations with Bacchiaz which eventually led to the consummation of the sub-agency agreement with Mondami.

As the learned trial judge pointed out, the execution by Mondami of its Contract of Agency with Rielda on 22 July 1994 readily explains why, during mid 1994, Mondami was pressing Technilock to consummate a distribution rights agreement with it, which contained its own, fairly stringent, performance clause. It was, of course, setting out to ensure that, by such means, its own obligations would be satisfied.

The learned trial judge specifically found that neither Keimeier nor McNicholl knew of Mondami's performance obligations or of the existence of terms of the Contract of Agency which permitted termination of it on non fulfilment of those obligations. He accepted that "both Keimeier and McNicholl believed that Bacchiaz and Mondami were in effect one with Rielda. It was the impression Bacchiaz gave them ". He accepted the evidence of Keimeier, McNicholl and Tomkins that, had they known the true position in that regard, they would not have been prepared to invest in the project. It goes without saying that, had they known, at the time of initial representation, of the "at will" relationship which existed between Rielda and Mondami, they would scarcely have given the proposed arrangement any serious consideration at all. There would simply have been no security for the investment proposed to be made.

In this regard the cross examination of Bacchiaz appearing at pp 996-997 of the transcript is illustrative of what he finally accepted that he said to McNicholl. The relevant portions read:-

"Q. You say you never told Mr McNicholl 'I am Rielda'. A. In that word, no, I did not. HIS HONOUR Q. You say you have never said that. A. I have never said that I am Rielda. I have said that I am part of Rielda and the total responsibility about negotiation and selling of the rights to represent Rielda. Q. You have never written such a thing. A. I don't recall if I did or not. I don't know if I did. XXN Q. And if you did it was untrue, was it. A. If I did it would be a figure of speech. Q. A figure of speech. A. Yes. HIS HONOUR Q. What do you mean by that. A. Can I just give you an example, the difference between Italian person walking in front of the company that he works and Anglo-Saxon person going in front of a factory that he works. An Italian would say 'This is my factory.' Anglo-Saxon would say 'This is where I work.' XXN Q. Can you go to your letter at p 66 of Volume 1. A. Yes. Q. We have looked at this letter before. This is the one where you assert that Mr McNicholl's fax of 9 February 1994 was confirmation of the agreement and constitutes the agreement. It is para. 1. A. Yes. Q. Would you look down at the last paragraph at the very bottom of that page. A. Yes. Q. And just read that paragraph to yourself. A. I have read it. Q. You see the bit where you say, and I think this is another one signed by you, not by your wife. A. Yes. Q. 'As far as Mondami/Rielda is concerned (as that means Rielda and Mondami is one and the same).' A. Exactly what I said is correct. I am the person who can negotiate for Rielda and Mondami exclusively, and that was the case."

Technilock placed an initial order dated 16 February 1994 direct with Rielda for a total of some 5000 locks. A copy of this appears at AB Vol 9 pp 39-42. It sought delivery of a variety of models of locking devices and keys.

By way of example, the first page of the purchase order read as follows:

"TECHNILOCK (AUST.) PTY LTD. 96 HAVEN ROAD TEL: 61 7 PULLENVALE 4069 FAX: 61 7 3742847 (A.C.N. 063 119 666) PURCHASE ORDER TO: RIELDA S.R.L. ISSUE DATE: 16/2/94 Frazione Castello di Corno Area Industriale PAGE NO: 1 OF 4 02013 Antrodoco (Rieti) - ITALY P/ORDER NO: 020

SHIP VIA: A. Hartrodt (Italia) DELIVER TO: Technilock (Aust.) Pty.Ltd.

1. Invoices must quote Purchase Order number and Vendor Code and to be forwarded and charged to:-

2. Invoices priced in excess of order price will not be accepted.

TERMS OF PAYMENT: By Irrevocable L/Credit - 60 days from Bill of Lading.

TERMS OF PACKAGING & DELIVERY: As per instructions below.

5,000 pcs. of locks to be made with lock 5,000 16,950 84,750,000

in O Position, Unlock at 90 Position, and Change at 120 Position. All locks to be made so that the Slave Key cannot enter into the Change Position. Only the Gold Key can enter into Change position only. Gold Key can enter into Change Position In or Out. Delivery as required.

5,000 pcs special anti-drilling 5,000 21,000 105,000,000

hardware steel. Locking operation of locks to be same as Item 1. Model 203A1.

1,000 pcs with 403A1 Cylinder. 1,000 22,500 22,500,000

Locking operation to be the same as Item 1. Model 203A1.

The order gives a quite detailed description of the various items to be supplied. Inter alia, there is a clear distinction between model 203 and model 403 items and a specific reference, apropos the latter, to the "Anti-theft special anti-drilling hardware steel", which appears to have been peculiar to that item alone.

Although the order form bears the name of Technilock it was in fact prepared by Bacchiaz and bore his address. Mr Morcombe QC suggested that none of the respondents were aware of its contents at the time, but I am by no means convinced that this was so. It is clear that the order was prepared by Bacchiaz in consultation with Harrison, albeit just prior to the formal employment of the latter by Technilock. It seems to me implicit, in at least the evidence of McNicholl, that this was done with the tacit approval of himself and Keimeier because, as McNicholl put it "at that stage, both Heinz [Keimeier] and I weren't at all familiar with the product, and he [Bacchiaz] said that it is best if he put it together, because he knew exactly what he was doing". I infer that, at the very least, they were aware of its contents immediately after it had actually been prepared.

The arrangements with Rielda envisaged the need for a letter of credit to be established to support the order. Indeed, the final page of the order specifically recognises that requirement. For various reasons (most of which seem to have been related to problems in concluding satisfactory heads of agreement with Mondami), Technilock was tardy in providing the letter of credit. It was not actually supplied until 21 April 1994, despite prior requests from Rielda.

There was some delay thereafter in supplying the locks and keys. Deliveries occurred in batches. In the course of his reasons the learned trial judge said:

"The stock ordered in February 1994 and for which the letter of credit was opened in April came in dribs and drabs from August. That in itself was unsatisfactory. Technilock could hardly promote a product if it had no samples to demonstrate. Technilock complained often about this. Worse still, when the locks did arrive they were not good."

The documentation in AB Vol 9 pp 179 et seq, which tends to suggest that at least the model 203 and 403 items were due to be delivered to Technilock in late June or early July 1994. (See, in particular, AB Vol 9 p 179). However, exhibit P12 (reproduced at AB Vol 11 p 617) indicates that deliveries did commence on 3 August 1994. This seems to have been common ground between the parties. Further deliveries in respect of the first and a subsequent order were made on 12 September 1994, 31 October 1994, 28 December 1994, 16 January 1995, 28 February 1995, 15 March 1995, 11 April 1995 and 28 April 1995 respectively. The deliveries spanned substantial numbers of quite a wide spread of lock models. In all a total of 6135 locks were eventually received.

There is no doubt that there were unexpected delays in delivery due to the fact that the Australian market required a different cylinder shape from that supplied for the European market. Rielda experienced serious production difficulties, which necessitated expensive re-tooling within its factory.

Technilock proceeded to sell the Rielda locks, procured through the initial and the subsequent order, to various customers. Undoubtedly, various problems were experienced in the performance of at least some of them. A question arose at trial as to the nature and extent of those problems and the timing and frequencies with which they occurred. I will return to a more detailed discussion of this aspect later in these reasons.

Unfortunately, the learned trial judge only made findings in a general and what was, in the main, non-definitive fashion.

He made comments such as "...when the locks did arrive they were no good"; "There were many unhappy customers, many were big organisations"; "What orders it did get and supply turned out to be disasters, like Rebel Sports Stores which fitted the locks to their tills but then could not open them to get to the money!" and "The fact is that a high proportion of the locks were too unreliable to sell. They were no good."

A major problem with the reasons is that, leaving aside the specific comment concerning Rebel Sports Stores (to which I shall later return), it is quite impossible to extract any precise detail as to the nature and extent of problems found to have been encountered. There is no identification of the specific evidence which bore on those aspects - save for a number of general references to the evidence of Keimeier, McNicholl and Tomkins, some customer and other correspondence and documentation principally raised by Harrison. Certain of that material had been admitted, over the objection of counsel for the appellants, pursuant to s 45a of the Evidence Act 1929 (SA) (the "Evidence Act"), although the evidence is singularly silent as to the precise basis of tender of the individual items comprising the remainder of the material in question. A good deal of it came in by consent and some of it was received, subject to a standing objection on the part of Mr Morcombe QC.

As a result a most unsatisfactory situation developed. The status of the documentation taken in subject to objection was never ruled upon, either at trial or in the reasons for decision of the learned trial judge. Further, it remained far from entirely clear as to the purpose for which that material or the other material not objected to was tendered.

I will also return to a discussion of such documentation and its probative value in due course.

Ultimately, Technilock failed, in about mid to late 1995, for a variety of reasons (T683). Steps were taken to wind it up.

Rielda had terminated the head arrangement with Mondami on 22 July 1995, because of performance failure. However, the evidence indicated that Rielda was nevertheless prepared to continue to supply Technilock direct, if required. (See, for example, AB V10 p404, exhibit D23.)

The present proceedings were commenced on 9 September 1996. The respondents' claims were for appropriate declarations and damages for what was asserted to be misleading or deceptive conduct, in contravention of s 52 of the Trade Practices Act 1974 (Cth) (the "TPA") and s 56 of the Fair Trading Act 1987 (SA) (the "FTA") and in negligence and breach of contract.

In view of the issues sought to be debated on this appeal it is important to extract from the amended statement of claim dated 2 December 1988 the specific, discrete representations complained of and also the manner in and extent to which, it was said, those representations were false.

The relevant pleas as to representations, excluding some detailed particulars, were expressed as follows:

"11. During the course of showing the Rielda locking system to Keimeier in or about December 1993, Bacchiaz on behalf of Mondami made the following oral representations about the Rielda locking system ("the Keimeier representations"): 11.1 That the Rielda locking system was a really good system; 11.2 That the Rielda locking system was a high security product; 11.3 That the Rielda locking system was a whole security system; 11.4 That the Rielda locking system was a revolutionary system and that in 10 years' time Keimeier would not see another locking system around apart from this one; 11.5 That the Rielda locking system would eventually put locksmiths out of business; 11.6 That the Rielda locking system would fit straight into existing Lockwood or Whitco hardware; 11.7 That the Rielda locking system operated so that its locks could be changed without the need for a locksmith to come and change the entire mechanism; 11.8 That each cylinder in the Rielda locking system was capable of five million change combinations; 11.9 That the Rielda locking system was made out of anti-drill stainless steel and that it could not be drilled with a battery powered hand drill; 11.10 That the Rielda locking system was unable to be picked; 11.11 That Bacchiaz had the world rights to the Rielda locking system and handled everything outside Europe; 11.12 That Bacchiaz effectively controlled both Mondami and Rielda and that if Keimeier wished to become involved in distributing the Rielda locking system Keimeier could be satisfied in dealing with Bacchiaz or without having to deal direct with Rielda; 11.13 That Bacchiaz was currently selling the Rielda locking system to people in Macau; 11.14 That there were certain parties in America who were interested in purchasing the rights to the Rielda locking system; 11.15 That Bacchiaz was dealing with companies such as Telecom and Coca Cola who were interested in purchasing very large numbers of the Rielda locking systems; and 11.16 That Bacchiaz had been working with Telecom and Coca Cola for over 12 months and that these companies were nearly ready to sign contracts to purchase large numbers of the Rielda locking systems. 11A. Further, Bacchiaz on behalf of Mondami represented to Keimeier that Mondami held the full and unencumbered exclusive rights to distribute the Rielda locking system in Australia for the duration of the existing patent and any further patents which may be granted for the Rielda locking system and that Mondami was capable and legally able to grant those rights to Technilock ('the second Keimeier representation'). ... 16. During the course of showing the Rielda locking system to McNicholl in or about December 1992 Bacchiaz on behalf of Mondami, made the following oral representations about the Rielda locking system ('the first McNicholl representations'); 16.1 That Bacchiaz was about to make certain sales of the Rielda locking systems in America and in New Zealand; and 16.2 That Bacchiaz was about to sell some of the Rielda locking systems to Singapore Airlines. 17. In or about December 193 McNicholl, whilst again staying with Bacchiaz at Bacchiaz' home in Queensland, had a further conversation with Bacchiaz concerning the Rielda locking system, during the course of which conversation Bacchiaz made the following oral representations on behalf of Mondami ('the second McNicholl representations'): 17.1 That the Rielda locking system was a security item which was unpickable even by a locksmith; 17.2 That the Rielda locking system was unable to be drilled out. 17A. Further, Bacchiaz on behalf of Mondami represented to McNicholl that Mondami held the full and unencumbered exclusive rights to distribute the Rielda locking system in Australia for the duration of the existing patent and any further patents which may be granted for the Rielda locking system and that Mondami was capable and legally able to grant those rights to Technilock ('the third McNicholl representation'). ... 29. In or about the month of December 1994 Tomkins went to Bacchiaz' home where Bacchiaz demonstrated the Rielda locking system to Tomkins. 30. During the course of this demonstration Bacchiaz on behalf of Mondami made the following oral representations about the Rielda locking system ('the Tomkins representations'): 30.1 That the Rielda locking system was a security product with a lot of potential; 30.2 That the security area in general was full of potential for growth and development; 30.3 That the Rielda locking system was revolutionary product with a world wide patent; 30.4 That Bacchiaz had been selling thousands of the Rielda locking systems in Europe; 30.5 That Technilock was about to make substantial sales of the Rielda locking system to the following: 30.5.1 30.5.2 30.5.3 30.5.4 Burswood Casino; 30.5.5 30.5.6 Nation Fire and Security; 30.5.7 30.5.8 30.5.9 30.5.10 30.5.11 Australia Post; 30.5.12 30.5.13 Telecom; 30.5.14 Coca-Cola; 30.5.15 Mater Hospital; 30.5.16 Electricity Companies; and 30.5.17 Schweppes 30.6 That Technilock would make a profit of $1,380,955 after its first full year of trading and a profit of $18,363,482 after four full years of trading. 30.7 That one of the samples shown by Bacchiaz to Tomkins, a key and knob set, was a product which would be available for Technilock to distribute pursuant to the Heads of Agreement in approximately 6 weeks time; 30.8 That the Rielda locking system was almost impossible to pick. 30A Further, during the course of this demonstration Bacchiaz on behalf of Mondami gave Tomkins a bound Rielda locking system proposal document, see plaintiffs' discovered document number 509, ('the proposal document') and then made the following representations ('the second Tomkins Representation'): 30A.1 an oral representation that Technilock had purchased from Mondami for the sum of $500,000, $200,000 of which remained to be paid, the full and unencumbered exclusive rights to distribute the Rielda locking system in Australia, as set out in the Heads of Agreement contained within the proposal documents; and 30A.2 an implied representation that Mondami had been capable and legally able to grant those rights to Technilock. ..."

The specific assertions of falsity relied upon were expressed in these terms:

33. The Keimeier representations, the first and second McNicholl representations and the Tomkins representations were false in that: 33.1 The Rielda locking system is defective as many of the locks fail or are very difficult to operate; 33.2 The Rielda locking system has a tendency to jam making it difficult or impossible to remove the change key; 33.3 The Rielda locking system does not fit straight into existing Lockwood or Whitco hardware; 33.4 It is possible for the combination to change in the lock as a result of the Rielda locking system being knocked or a door slamming; 33.5 It is often necessary to call a locksmith anyway due to the change key getting jammed in the Rielda locking system; 33.6 Each cylinder in the Rielda locking system is not capable of five million change combinations and is in fact only capable of 16,384 change combinations; 33.7 The dealings with Coca Cola and Telecom were not as suggested and these companies were not and never have been nearly ready to sign up; 33.8 The Rielda locking system was not a really good system but in fact was a faulty and defective system; 33.9 The Rielda locking system was not a high security product; 33.10 The Rielda locking system was not made out of anti-drill stainless steel and can easily be drilled with a battery powered hand drill; 33.11 The Rielda locking system can easily be picked; 33.12 Bacchiaz did not effectively control Rielda and Keimeier could not be satisfied in dealing with Bacchiaz without having to deal directly with Rielda as there were lengthy delays in supply and failures to supply as well as substantial problems in communication; 33.13 There was no great potential for sale of the Rielda locking system in Australia due to the failure of the system to operate effectively and being a poor quality product; 33.14 Bacchiaz had not been selling thousands of the Rielda locking systems in Europe; 33.15 Technilock was not about to make substantial sales of the Rielda locking systems to the entities set out in paragraph 30.5 above; 33.16 the potential for profit to Technilock from sales of the Rielda locking system was low due to the failure to the system to operate effectively and being a poor quality product; and 33.17 the key and knob set referred to in paragraph 30.7 above was never available to Technilock to distribute. 33.18 Mondami did not at any material time hold the full and unencumbered exclusive rights to distribute the Rielda locking system in Australia as these rights were restricted by the fact that: 33.18.1 Mondami only held the rights for a term of 5 years: ..." (Once again, detailed particulars have been omitted.)

As to the claim in contract the respondents pleaded:

"36. By reason of the matters set out in paragraph 22 and 23 above on or about 7 April 1994 Technilock and Mondami entered into a contract the essential terms of which were as follows: 36.1 Technilock would pay to Mondami the sum of $500,000. 36.2 This sum was to be made up of payments of: (i) $100,000 by Keimeier to Bacchiaz; (ii) $200,000 by McNicholl to Bacchiaz; and (iii) $200,000 payable to Mondami by Technilock as set out in paragraph 21 above. 36.3 Mondami was to allow Technilock to have the exclusive rights to distribute the Rielda Locking System in Australia. 36.4 The Keimeier representations, the second Keimeier representations and the first, second and third McNicholl representations. 36.5 That any Rielda Locking Systems supplied to Technilock by Mondami or Rielda would be of merchantable quality and fit for the purpose retail sale to the public by Technilock. ... 37.1 Keimeier and McNicholl, paid $100,000 and $200,000 respectively to Bacchiaz as set out in paragraphs 14 and 20 above. 37.2 Technilock purchased from Mondami stocks of Rielda locks. 37.3 Technilock purchased from Rielda stocks of the Rielda Locking System. This purchase by Technilock was financed by Keimeier and McNicholl contributing $85,000 each to the purchase of a Letter of Credit on behalf of Technilock. 38. Mondami is in breach of the contract by reason of the matters set out in paragraph 33 above." (Particulars omitted)

The claim in negligence asserted, in essence, that, by reason of the matters pleaded as recited above and the asserted purpose for which Technilock had been brought into assistance, Mondami and Bacchiaz each owed to Keimeier, Tomkins, McNicholl and Technilock a duty to take reasonable care. It was said that, by reason of the matters set out in para 33, the appellants breached that duty, whereby loss and damage was sustained by the several respondents.

Against the foregoing background the respondents claimed the following relief:

1. "Declarations that the defendants and each of them have engaged in conduct which is misleading and/or deceptive contrary to Section 52 of the Trade Practices Act, 1974 and Section 56 of the Fair Trading Act, 1987 (South Australia), or in the alternative Section 38 of the Fair Trading Act 1989 (Queensland). 2. Declarations that the defendants and each of them have made false representations contrary to Section 53 of the Trade Practices Act, 1974 and Section 58 of the Fair Trading Act, 1987 (South Australia) or in the alterative Section 40 of the Fair Trading Act 1989 (Queensland). 3. Rescission of the agreement contained in the Heads of Agreement. 4. Orders pursuant to Section 87 of the Trade Practices Act, 1974 and/or Section 85 of the Fair Trading Act, 1987 (South Australia) or in the alternative Section 100 of the Fair Trading Act 1989 (Queensland) rescinding the agreement. 5. Damages. OR IN THE ALTERNATIVE in paragraphs to 2, 3, 4 and 5 of the Prayer for Relief. 6. An assessment of damages pursuant to Section 7 of the Misrepresentation Act, 1972 (South Australia). 7. As assessment of damages pursuant to Section 82 of the Trade Practices Act, 1974 and/or Section 84 of the Fair Trading Act, 1987 (South Australia) or in the alternative Section 99 of the Fair Trading Act 1989 (Queensland). AND 1. Interest. 2. Costs. 3. Such further or other relief as the Court deems just."

In the proceedings Mondami filed a counter claim against Technilock and Keimeier. This alleged breach of the performance clause of the relevant heads of agreement and a failure to pay all moneys stipulated by that agreement. It sought payment of the moneys due and interest.

I have dwelt on the content of the pleadings in some detail because the reasons for decisions of the learned trial judge fall to be considered in light of them.

One difficulty which arises is that, in his published reasons, the learned trial judge did not canvass the full detail of the specific points raised and was content to dispose of both claim and counter claim simply by reference to the statutory causes of action. He made no detailed reference to the claims in contract and negligence. The counter claim was not disposed of, either in the reasons or the judgment as sealed and entered.

In the course of his reasons the learned trial judge accepted the evidence of the expert witness Cherry that those locks tested by him were readily picked, exhibited no resistance whatever to mild steel bits used in a battery powered drill and only had 12288 combinations. He also commented that "there were several other ways in which the locks which Cherry examined did not live up to the claims that Bacchiaz made to the plaintiffs. There is no need for me to mention them all."

There is no definitive finding as to the locks to which Cherry directed his tests, although exhibit D3 indicates that the solicitors for the respondents sent to him the following samples:-

(On the appeal counsel for the respondents informed the Court that these, together with later examples of the 4000 model given to Cherry, spanned all types of lock ordered by Technilock from Mondami.)

It does not emerge whether any of these purported to contain anti-drill features.

In the course of his evidence (T109) this witness said that he drilled four locks, but could not recall what models they were. His supplementary written report refers to drilling an additional two 4000 model locks. These were only one of a large series ordered by Technilock and were not specifically represented to possess special anti-drilling characteristics. Moreover, he also conceded in cross-examination (T109 and T131) that he had kept no record of the four or five locks which he attempted to pick or drill.

It was against that background that the learned trial judge simply arrived at this final, ultimate conclusion:-

"I have canvassed only part of the oral evidence - and hardly any of the documents which I admitted - but, so far as I am concerned, the plaintiffs' case against the defendants is already quite overwhelming. The false claims about the locks, their poor quality and performance, and Bacchiaz' lack of disclosure of the true relationship between himself and Mondami on the one hand and Rielda on the other, make up a picture of conduct both misleading and deceptive. Accordingly the plaintiffs succeed. There is no need to consider the evidence further, neither that relevant to the cause of action on which the plaintiffs succeed nor to any other cause of action pleaded in the statement of claim."

At the end of the day there was no enlightenment of the reader as to the nature and extent of the defects or technical shortcomings in specific locks, any more than there were any particularity as to the quantum and nature of customer complaints said to have been received.

The notice of appeal in this matter raises a substantial number of issues. At the risk of some oversimplification they may conveniently be grouped into four categories, namely:-

(1) a contention that certain material was inappropriately admitted into evidence pursuant to the provisions of s 34C(2)(a), s 45a or s 45b of the Evidence Act, or when it was inadmissible hearsay;

(2) an assertion that there were significant patent errors of commission or omission in relation to the findings of fact made;

(3) pleas that inappropriate legal principles had been applied to the legal relationship between the relevant parties; and

(4) complaints that the learned trial judge had, in several respects, fallen into error in his approach to assessment of damages.

It should be said, at the outset, that, insofar as the notice of appeal sets out to challenge positive findings of fact, this Court is bound to apply the principles expressed by the High Court in its decisions in Devries & Anor v Australian National Railways Commission (1992-1993) 177 CLR 472 ("Devries") and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) & Ors [1999] HCA 3; (1998-1999) 160 ALR 588 ("SRA").

In Devries it was pointed out that, if a finding depends, to any substantial degree, on the credibility of a witness, that finding should stand, unless it can be shown that the trial judge has failed to use, or has palpably misused his advantage, or has acted on evidence which was inconsistent with facts incontrovertibly established by the evidence, or which was glaringly improbable.

Nevertheless, in SRA, the point was made that the fact that a trial judge was heavily swayed by his impression of a witness while giving oral evidence does not preclude a court of appeal from concluding that, in the light of other evidence, a primary judge had too fragile a base to support a finding that a witness was unreliable.

In this last mentioned respect particular attention was directed to the dictum of Kirby J at 608, where, apropos of the facts under consideration, he commented that the concern of the court arose from a contrast of the conclusion of the trial judge with apparently reliable and incontrovertible documentary evidence, a significant amount of uncontested oral testimony and the absence of relevant testimony from the respondent parties to refute or meet the significant case presented against them.

Many of the matters debated before this Court demand a review of the findings of fact made bearing in mind those approaches, particularly in light of what are said to be features which attract some of the types of consideration adverted to by Kirby J.

Having said that I propose to address the issues debated before this Court in the broad sequence of the categories into which I have grouped them above.

It is trite to say that, as a vital part of their case, the respondents bore the onus of proving the falsity of the representations made to them and of the lock and system deficiencies upon which their claims were based.

At trial oral evidence was given by Keimeier, Tomkins and McNicholl. However, three persons who could, potentially, have given important direct evidence as to the nature and extent of problems experienced with locks, the measures which had to be taken to remedy them and the complaints received from customers were not called. These were Harrison, Wong (a technician employed by Technilock, as from 20 February 1995, to attend to remedial tasks when problems were encountered) and Wood (a salesman who, as from 26 April 1995, had relevant customer contact). Nor were any witnesses called from those customers who encountered specific problems and voiced dissatisfaction with Technilock.

Reference was also made by the appellants to the failure to call Jennifer Parker, a business consultant retained by Technilock - although it is not clear to me what relevant evidence (if any) she might, potentially, have been able to give.

However, the respondents sought, in the main, to rely upon secondary sources of information to establish their assertions as to the detailed lock problems which were encountered.

In this regard it is to be noted McNicholl had little direct knowledge of lock failures. He was essentially dependent upon information given him by Harrison (T720).

Keimeier had only a very limited personal exposure to any defects. He, personally, found a maximum of some six cylinders into which it was difficult to insert keys.

A good deal of any knowledge of Tomkins was, necessarily, second or third hand, although he did give evidence as to some important first hand involvement.

No explanation was given for a failure to call either Wong or Wood.

It was said, by the respondents, that they did not propose to call Harrison because he had been dismissed in about August 1995, was located in Hong Kong and was not well disposed towards the respondents. Indeed, it was said that, following his dismissal, he commenced, in his own right, selling the very products which he had been selling for Technilock, in direct competition with it.

Inter alia, the respondents tendered and sought to rely on a series of letters, reports and other documentation which related to stock deliveries and complaints, or records of alleged lock defects. A substantial number of these were documents of which Harrison, McNicholl, Tomkins and Wong had been the authors.

The bulk of these were admitted into evidence, either, as business records of Technilock, or as documents which were allowed in without objection. Some of them were admitted in subject to objection on the part of counsel for the appellants, but no final ruling seems ever to have been given concerning them.

The appellants complain not only as to the admission of the documents in question but also that the learned trial judge made impermissible use of the content of them.

The appellants further object that the learned trial judge admitted oral hearsay evidence bearing on alleged defects with locks and impermissibly acted upon it.

In the course of his reasons for decision the learned trial judge discussed this aspect of the case in these terms:-

"There was plenty of evidence from Keimeier, McNicholl and Tomkins of customer complaints and unhappy experiences. There was also plenty of documentation which detailed the unsatisfactory nature of the locks. Some were written by Roland Harrison, some the correspondence from unhappy customers. Mr Neville Morecombe QC[sic] with Mr John Morecombe[sic] for the defendants, objected to this evidence being given, complaining that it was hearsay. Mr Martin Hoyle[sic] for the plaintiffs countered effectively that s34c, 45a and 45b of the Evidence Act were sufficient to answer the objection. He argued that these sections allow the admission of all business documentation, subject to the discretion of the judge, to prove the facts of which they speak and also hearsay facts contained within them."

Having reflected on certain dicta of King CJ in The Queen v Calabria (1982) 31 SASR 423 concerning the rationale of s 45a and s 45b of the Evidence Act and a submission of counsel for the respondents as to the practical problems of seeking to adduce evidence of large numbers of persons who had experienced lock difficulties, the learned trial judge continued:-

"That part of Mr Hoile's address does highlight the issue that sections 34c, 45a and 45b address. This is the mischief which King CJ pointed out the sections alleviate. There were many unhappy customers, many were big organisations. To rely solely on direct evidence as Mr Morecombe QC [sic] tried to insist, would result in wasted expense, time and effort to prove something which already is obvious. Mr Harrison at the time of trial was said to be in Hong Kong: calling him would have been difficult. This alone would enable me to allow in business records under section 34c(2)(a). As for the remainder of the documents, they are clearly business records and I admit them under sections 45a and 45b. The fact is that Technilock never did succeed in getting orders from any of the big names which Bacchiaz had bandied about, Telecom and so on. What orders it did get and supply turned out to be disasters, like Rebel Sports Stores which fitted the locks to their tills but then could not open them to get to the money! It was costing Technilock more to go out to fix or replace faulty locks than the price they received for them. Eventually Technilock realised the risk of harm and injury to persons - such as Victorian Housing Commission tenants being locked in a laundry - was so great that they could not go on taking it by selling the locks."

In the course of his submissions Mr Morcombe QC specifically identified various documents which, he said, ought not to have been admitted into evidence. As a secondary argument, he contended that, even if they were admissible, they could not reasonably have been relied upon as discharging the respondents' onus of proving the nature and extent of the alleged breaches of representations and, in particular, the nature and extent of lock defects. The content of them was, he said, non probative hearsay which could not be attributed any real weight.

There can be no doubt that, in this case, the respondents, inter alia, elected, in large measure, to found their case as to problems with locking devices on the documentary material sought to be impugned. This was to be considered together with the evidence of Cherry and certain direct evidence of Tomkins. They also relied on a good deal of secondary evidence, not merely to establish receipt of customer complaints, but also in purported proof of the truth of the facts complained of. Their case was, thus, based on both direct and circumstantial evidence.

It is not simple to trace precisely what occurred at trial in relation to some documentary material. Quite clearly certain of it was, as I have said, admitted as business records, pursuant to s 45a of the Evidence Act, although much of the balance of it seems to have gone in without objection.

On the appeal the Court was supplied with a most useful written analysis of the three categories of document in question.

Sections 45a and 45b were inserted into the Evidence Act to overcome common law technicalities which prevented evidence being admitted on the grounds of hearsay which would otherwise have been of probative value. (The Queen v Calabria (supra) at 429-430 and Ryan and Ors v ETSA and Ors (No 2) (1987) 47 SASR 239 at 241-242).

In so far as any material was properly admitted, pursuant to s 45a of the Evidence Act, as constituting business records of Technilock, then such admission has the practical effect of rendering admissible material which may well have been objectionable as hearsay, had it been the subject of oral evidence (Ryan & Ors v ETSA & Ors (supra) at 243). Indeed, in part, that was the obvious purpose of s 45a (The Queen v Calabria (supra)). By virtue of s 45a(3), once hearsay material is so admitted, then it simply becomes a question of the weight which fairly ought to be attached to it. The statute mandates that, in assessing such weight, consideration is to be given to the source from which the document is produced, the safeguards, if any, that have been taken to ensure its accuracy and any other relevant matters. (See, for example, Sianis and Anor v Barlow and Ors (1987) 48 SASR 469 at 476).

In the instant case the material specifically admitted as business records came in without objection and merely touches on late delivery dates. It is not, in any event, relevant to any question of representations made or the quality of the locks delivered. Accordingly, it is not necessary to dwell on it.

However, the considerable volume of the documentation allowed in without objection stands on a quite different basis. This records a consistent pattern of substantial numbers of lock failures over the period from May 1994 to October 1995. Causes ranged from non buffed keys, to retro fitting tolerance problems, ease in picking or breaking the lock mechanisms, undue mechanism wear, loose internal component fit causing jamming and general high rates of lock failure. The picture was one of constant and widespread complaints on all of these aspects, coupled with a rejection of locks by potential large volume purchasers because of unsatisfactory test outcomes.

For example, the Machine Gaming Commission of the Queensland Treasury, rejected the system because it asserted that its tests indicated that the locks were readily picked and the internal components failed with a small application of pressure. All ten test locks installed in the Rebel Sports cash registers failed and had to be unlocked by a locksmith and replaced. Twelve test locks installed by the Victorian Housing Commission failed for multiple reasons.

In a report written by Tomkins to McNicholl and Keimeier on 18 October 1995 and put in without objection, he wrote:-

"On Tuesday 26_th_ September, I received a phone call from Doug Stanborough, Victorian Housing Commission, who advised me that they were having problems with the twelve cylinders they had on trial. He said the elderly people were not putting the slave key all the way into the cylinder, yet the slave key opened the lock and put the cylinder into the change position. The Caretaker then had to insert the change key and re-code the cylinder. Doug went on to say that in their opinion, the locks were failing due to wear and that three of the cylinders had been replaced with Lockwood cylinders. As you can appreciate, this is a major concern if cylinders are wearing out after six months of use. I have asked Doug Stanborough to send me the cylinders that have failed which he said he would do. You will remember Victorian Housing Commission was the job that would give Technilock a potential $4M worth of sales over the next few years. These cylinders had been specially manufactured on John Bacchaiz's instructions to ensure they would pass the tests carried out by Victorian Housing."

It should be stressed that all of the documents in question, in any event, patently formed part of the business records of Technilock and followed a consistent pattern. Some of them referred to observations and tests made by Harrison personally.

The authorities clearly establish that, where hearsay material is admitted without objection, then that evidence is available, as portion of the overall evidence in the case, to be attributed such weight as the Court may consider appropriate. (Casley-Smith & Ors v F S Evans & Sons Pty Ltd and District Council of Stirling (No 1) (1988) 49 SASR 314). As a matter of logic weight will be assessed in light of the same types of consideration as are envisaged by s 45a(3) of the Evidence Act.

In this regard there is simply no reason to question the general accuracy of the content of the documents as records of contemporaneous events as they unfolded. No positive steps were ever taken by the appellants to challenge them as to the facts asserted and they exhibit an obvious aura of authenticity.

Indeed, in relation to certain of the early problems encountered, it is significant that, on 23 September 1994, Bacchiaz wrote to McNicholl referring to the production problems being experienced by Rielda in respect of the manufacture of locks for the Australian market and spoke of the purchase by that company of a new production machine at a cost of $US1m.

Furthermore, the material sought to be impugned constituted but portion of an overall body of circumstantial evidence.

Whatever else may be said of the evidence of the Cherry, there can be no question that the locks tested by him were readily picked, easily drilled with a battery powered drill and only had a limited number of combinations. He also adverted to the difficulty of key insertion due to construction of the key way, and in cylinder operation and change of combination.

Further, the documentary material must also be considered against the background of the direct evidence given by Tomkins and accepted by the learned trial judge. As was pointed out Mr White QC, of senior counsel for the respondents, this evidence spanned topics such as:-

(1) receiving a phone call from Chris Gregory at CCA Private Prisons complaining about the cylinder sample which had been left with him (AB Vol 5, T502.33-34) and then actually going and looking at the cylinder and attempting to fix the problem, which he was unable to do (AB Vol 5, T503.1-9);

(2) a lock failing in Tomkins' presence when Harrison was demonstrating it to Chan at Telecom (AB Vol 5, T509.34-38);

(3) when Tomkins went to Coca-Cola and demonstrated the locks and the client saw that he could not remove the change key from the cylinder on demonstration (AB Vol 5, T517.16-20, T558.35-38 and AB Vol 10,p432);

(4) a lock failure at the Queensland Building Authority where Tomkins went out to their premises with Harrison and watched Harrison do a demonstration of a padlock, during which the change key got caught in the cylinder, which the customers saw. Harrison had to put the padlock aside and continued the demonstration with two other padlocks (AB Vol 5, T517.29-38);

(5) Tomkins instructed Wong and Harrison to test all of the locks before sending them out and on occasions he saw Harrison and Wong testing the locks and that they jammed (AB Vol 5, T519.13-15);

(6) the locks jammed when Tomkins himself tested them on a number of occasions (AB Vol 5, T520.18-19);

(7) Tomkins was receiving bills, which Technilock was paying, from locksmiths to rectify faulty locks which had been sold to clients (AB Vol 5, T524.36 and T528.27). He employed Wong who was working nearly fulltime repairing/replacing cylinders (AB Vol 5, T525.2);

(8) when requested to open packs himself by Bacchiaz and test the cylinders Tomkins found that the first two that he opened would not work (AB Vol 5, T533.31-38; AB Vol 10, p351);

(9) a lock fail at Ledgen Marine Service. Tomkins received a phone call from Ledgen Marine saying that their staff were having trouble opening the lock and he went out himself and tried to fix the lock by decoding and recoding it (AB Vol 5, T562.106 and AB Vol 10, p437);

(10) problems were experienced with locks at McDonald's. Tomkins said that he was actually called out to one of the stores where they had a jamming lock. The lock was jammed and McDonald's couldn't even open the door. Tomkins said that he tried to get the change key in and decode and recode to see if it would work. When it did not work he actually replaced the lock (AB Vol 5, T566.1-9; AB Vol 10, p449).

(11) Tomkins sighted 70 locks in the warehouse, which Wong told him had been returned and that they had failed. Tomkins instructed Wong to fix them (AB Vol 5, T501);

(12) he received telephone calls from customers who had bought the locks and were complaining that they had failed, eg Doug Spanborough of the Victorian Housing Commission (AB Vol 5, T518.24-30, T564.29-38 and T565.1-8), Boss Safes on behalf of Rebel Sports Stores (AB Vol 5, T527), Dean Grant of Coca-Cola (AB Vol 5, T568.1-27) and Physical Security Concepts. Tomkins also gave evidence of receiving complaints from Harrison and also from Wood in respect of locks failing (eg L J Hooker, AB Vol 5, T562,14-21); and

(13) Tomkins was also receiving locks back from customers (AB Vol 5, T527, T528, T565.28-32).

Although any evidence of mere complaints received was not evidence of the truth of the facts alleged by those complaining, the complaints, taken alone, certainly indicated the existence of a significant body of dissatisfied customers or potential customers who were dissatisfied with the functionality of the locks.

It is manifest that all of the foregoing material, in its totality, amounted to a formidable body of evidence. This compellingly indicated that any hearsay assertions made in the documentation which came before the learned trial judge were essentially accurate and entitled to substantial weight, absent any attempt by the appellants to rebut it. This is the more so as they were no less entitled than the respondents to call witnesses such as Harrison and Wong.

I now turn to the so-called "standing objection" maintained by counsel for the appellants at trial. This appears, initially, to have been expressed as recorded at p 260 of the transcript and to relate to business documents of Technilock. As I understand the objection it was directed to a series of documents written by Harrison to Tomkins, McNicholl and Keimeier (or some of them) in which reference was made to lock defects.

I note that the objection does not, in terms, appear to have been directed towards the admissibility of the documents in question by virtue of the fact that Harrison was not called. Rather it seems to have gone to the weight to be attributed to the contents. However, Mr White QC accepted that it was understood by the respondents at the time that there was also a general objection as to admissibility.

As appears from the transcript at p260, Mr Morcombe expressed himself in these terms:-

"MR MORCOMBE: I say given the circumstances in which Mr Harrison was viewed by the company, that it will be my submission in due course your Honour should not attach any weight to these documents unless Mr Harrison is called to substantiate what is in them. MR HOILE: In due course. MR MORCOMBE: Perhaps I can have that as a standing comment on documents emanating from Mr Harrison and we will argue about what your Honour should do with them in due course."

The short riposte to that objection is that the specific documents the subject of it, strongly corroborate what emerges from the other evidence to which I have made reference and are supported by it. It is entirely consistent with that evidence and contributes, in a positive fashion, to it. Contrary to the submissions made, I consider that the learned trial judge was entitled to accord substantial weight to the documents objected to, in the event that the material was, indeed, admissible.

There can, I consider, be no doubt that the Harrison documents were, on the face of them, part of the business records of Technilock. All but one comprised copies of internal routine reports by Harrison to the principals of Technilock. The final document was a copy of Harrison's letter of resignation. There can be no question as to their contemporaneity or authenticity. Inter alia, they contained references to lock failures or deficiencies.

The only real question which arose (and was never ruled upon by the learned trial judge) was whether Harrison could and should have been called by the respondents to give evidence of the relevant subject matter.

There is no doubt that it would, at considerable cost, have been physically possible to call him. On the other hand no steps were ever taken by anyone to ascertain whether he would have been prepared to return from Hong Kong for the purpose.

Furthermore, given the circumstances of his dismissal from the employ of Technilock, it was reasonable to assume that he would probably have been hostile towards and uncooperative with the respondents.

At the end of the day I am by no means satisfied that he should have been called by the respondents and would have added anything of significance to what was said in his reports. In any event the reports essentially focused on generalities and added little to what otherwise clearly emerged from the separate documentation to which I have referred to above. I doubt whether the learned trial judge attached, or could have attached, any substantial weight to the material subject to objection, even if he did consider it. In my view most of it was probably inadmissible.

It follows that there is no real substance in this aspect of the appeal.

I move on to the next category of complaints made by the appellants.

In a sense this was intertwined with the evidentiary issues which I have just reviewed and must be considered against that background.

However, Mr Morcombe QC argued that, as part of its case, the evidentiary onus was on the respondents to identify:-

(3) in definitive terms, the precise causes of the various failures.

He pointed out that, whilst the evidence disclosed that there were consistent complaints to Bacchiaz about the quality of the product supplied, there were also constant responses by him that there was, in fact, nothing wrong with it. Some of the problems were said to have been merely the product of a lack of understanding of the proper operational technique to be used with the system. That impasse was, he contended, never satisfactorily resolved.

In this regard Mr Morcombe QC made reference to a long list of what, he submitted, were examples of serious deficiencies in the respondents' evidentiary case. He particularly asserted that:-

(1) none of the allegedly failed locks had been produced or analysed to examine the reason for failure;

(2) no customers had been called to make good their complaints;

(3) Harrison, Wong and Wood had not been called;

(5) Tomkins did not know what was wrong with the VHC cylinders and made no effort to recover them;

TECHNILOCK (AUST) P/L & ORS v MONDAMI P/L & ANOR No. SCGRG-96-1859 Judgment No. S320 [1999] SASC 320

At a glance

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Decision date

Source

Judgment (290 paragraphs)

TECHNILOCK (AUST) P/L & ORS v MONDAMI P/L & ANOR No. SCGRG-96-1859 Judgment No. S320 [1999] SASC 320 (6 August 1999)

Parties

Legislation Cited (8)

Cases Cited (16)