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Trade Practices Commission v Nicholas Enterprises

TRADE PRACTICES COMMISSION V. NICHOLAS ENTERPRISES PTY LTD (NO 2) (1979) 40 FLR 83

Federal Court of Australia

FACTS

The defendants ran five hotels in the metropolitan area of Adelaide. The defendants all sold packaged beer to the public.

The Trade Practices Commission commenced proceedings against the defendants claiming pecuniary penalties and injunctions. The claim alleged breaches of section 45 of the Trade Practices Act as the defendants had made an arrangement or arrived at an understanding which had the purpose or effect of substantially lessening competition and that they gave effect to that understanding. The essence of the arrangement as alleged was that the defendants would only allow two bonus bottles to customers who purchase twelve bottles instead of the then customary three bonus bottles.

ISSUES

Had the defendants made an arrangement or reached an understanding that they would reduce their bonus supply of beer?

Did the alleged arrangement lead to , or substantially reduce competition?

FINDING

An arrangement or understanding within the meaning of section 45 of the Act requires each party to have communicated with the other, for each party to have raised an expectation in the mind of the other and for each party to have accepted an obligation from the other.

There must be a meeting of minds. The raising of the expectation in one party must be communicated to the other party.

QUOTE

Fisher J said:

“A significant feature is the emphasis placed upon the necessity for each of the parties to have communicated with the other, for each to have raised an expectation in the mind of the other and for each to have accepted an obligation qua the other. These are, in my opinion the essential elements of the requisite meeting of minds.

“It seems to me also that an understanding must involve the meeting of two or more minds. Where the minds of the parties are at one that a proposed transaction between them proceeds on the basis of the maintenance of a particular state of affairs or the adaptation of a particular course of conduct, it would seem that there would be an understanding within the meaning of the Act”.

IMPACT

An arrangement to reduce competition in a market does not need to be a legally binding agreement or contract to make the parties liable under the Act.

Arrangements between competitors for the same market or customer may be in breach of the Act.

Trade Practices Commission v Commodore Business Machines

TRADE PRACTICES COMMISSION V. COMMODORE BUSINESS MACHINES PTY LTD (1989) ATPR 40-976

Federal Court of Australia – 3 August 1989

FACTS

Respondent supplied personal computers to 150 dealers around the country, requiring a commitment in writing that the computers would not be advertised at less than the recommended retail price. They obtained legal advice that this clause would be lawful so long as dealers recognised that they could sell the computers at whatever price they wished. Commodore threatened a number of dealers that supply would be withheld or dealerships cancelled unless the product was advertised at the recommended price. TPC contacted Commodore and advised that the conduct was a breach of the resale price maintenance provisions of the Act. A month later, Commodore wrote to the relevant dealers advising that the dealers could sell the computers at whatever price they wished.

Commodore argued that it merely wanted the computers to be advertised at a certain price and did nothing to prevent discounts. In relation to penalty, Commodore argued that it had acted on legal advice in the first place and had changed its practices as soon as the Commission notified it of alleged breaches.

ISSUE

Imposition of penalties and injunctions and the effect of legal advice in mitigating these penalties.

FINDINGS

Commodore’s conduct was in breach of the resale price maintenance provisions; substantial monetary penalties and injunctions were granted.

QUOTE

Justice Einfeld:

“It is one thing to argue that clause 4 was thought to be legal; this may entitle the respondent to some mitigating effect in the penalty for the distribution of the documents alone. It is quite another matter to use this to justify multiple efforts by employees to impose a quite crude regime of enforcement clearly outlawed by the Act and exposed by the considerable publicity given to this practice over many years.”

“It thus seems to me that the respondent’s activities represent a significant and deliberate interference with the rights of both dealers and the ordinary public which are protected and defined by the Act.

The fact that the large chains were not asked to sign the document and did not do so leads to two further conclusions. One is that the retailers with whom this case is concerned, in the main, are presumably small business proprietors. The second is that they were disadvantaged in relation to large stores by having their capacity to compete on price reduced or removed.”

IMPACT

Obtaining and following legal advice of a low standard may only be given limited regard when penalties are being considered.

Generally the whole circumstances of the breach will be considered.

Sutton v AJ Tompson

SUTTON V AJ TOMPSON PTY LIMITED (IN LLQ) (1987) ALR 233

Federal Court of Australia – 21 May 1987

FACTS

The Applicants purchased a business from the respondent KLK Manufacturing Pty Limited. The Applicants alleged that, prior to the purchase, a number of misrepresentations were made by the respondents regarding costs of inputs, average sale price to distributors, and average number of units sold per month.

ISSUE

The effect of the representations on the mind of the Applicants and their degree of reliance on those representations and the state of knowledge of the person who is misrepresenting.

FINDINGS

Once the contract is entered no further representations may be actionable. To be knowingly concerned in the contravention, the respondent must be an intentional participant, with full knowledge of the essential elements of the contravention.

QUOTE

Forster, Woodward & Wilcox JJ:

“…in a case such as the present, where the allegedly misleading conduct consists in representation directed specifically towards a particular person or group of people, with a view to making a single specific sale, it is more helpful to recall the principles of law …

Although these related to the common law action of deceit, they are, in our view, equally applicable to breaches of s52 of the Act. The principles are:

(i) Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case.

(ii) 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.

(iii) 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.

(iv) 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. ”

IMPACT

To claim the benefit of s52 of the Trade Practices Act, you must be truly influenced by a misrepresentation of the Vendor or Vendor’s Agent, prior to entering into the contract.

Misrepresentations made after entering into the contract are not actionable.

Sirway Asia Pacific v Commonwealth of Australia

SIRWAY ASIA PACIFIC PTY LTD V COMMONWEALTH OF AUSTRALIA [2002] FCA

Federal Court of Australia – 18 September 2002

FACTS

Sirway submitted a tender to the Department of Defence to supply chinaware under a standing offer agreement for a three year period. The chinaware was to meet a Specification, which involved testing the chinaware for water absorption, chipping and thermal shock.

Sirway’s tendered samples did not meet the specification and the Department of Defence held meetings with a director of Sirway, Mr Giammario (Giammario) regarding the failure. Despite the nonconforming samples, Sirway was the successfultenderer and signed a Standing Offer Agreement (SOA) in August 1997.

The Department of Defence raised two purchase orders. Several meeting were held over the next year regarding Sirway’s inability to provide the chinaware according to Specification. Eventually, Giammario wrote to the Department of Defence informing them the manufacturer was unable to meet the Specifications. The Specifications were reviewed by the Department and a testing laboratory, which concluded the Specifications were not too extreme.

The SOA was cancelled at a meeting in December 1998, as Sirway was unable to meet the Specifications. Sirway alleged, among other claims, that the Department had represented that it would accept chinaware that did not meet the specified standard.

ISSUES

Was the Commonwealth carrying on a business for the purposes of the Trade Practices Act 1974?

If so, was the Commonwealth liable for misleading and deceptive conduct under the Trade Practices Act 1974?

FINDING

Sirway claimed the Department managed a business of trading in chinaware in industrial quantities to bring an action under the Trade Practices Act for misleading and deceptive conduct. Their claim was based on the Department being aware that the chinaware did not meet the Specifications when they were granted the SOA.

Under the Trades Practices Act, Sirway had to prove that the Department was in trade or commerce. Therefore it attempted to demonstrate that the Department was carrying on a business of trading or acquiring chinaware in industrial quantities. The Court held that the Department’s core function was the defence of Australia and there was limited evidence of a “business”. As acquiring chinaware related to a government function in the community’s interests, therefore the Department was not in business. The Trade Practices Act was then unavailable for further claims.

The Court also found that if the Department has been engaging in business its conduct would not have been misleading and deceptive as it never represented that the tendered samples had complied with the specification or that acceptance of samples not meeting the specification would be satisfactory to the Department.

QUOTE

“Although the applicant focuses on its interaction with the respondent as the business operator, that is the applicant’s participation in the tender process and the conclusion of the SOA, it must first establish that the respondent was carrying on a business when it engaged in such activities. It is not sufficient that it establish the commercial nature of the respondent’s behaviour and the transaction; such behaviour must relate to the respondent’s carrying on of the alleged business.”

IMPACT

A tenderer when submitting tenders should make sure that they understand and are able to comply with the specifications. A Principal should be careful to ensure that it is careful about negotiating with a tenderer that may not meet the specification as it risks the tenderer later alleging that the commencement of negotiations means that strict compliance with the specifications is not necessary. Finally, the mere fact a government body is undertaking to operate in a certain field does not mean that it is operating a business in that field.

Oraka & ANOR v Leda Holdings

ORAKA PTY LIMITED & ANOR V. LEDA HOLDINGS LIMITED (1997) ATPR 41-558

Federal Court of Australia – 4 April 1997

FACTS

Woolworths grocery chain wished to establish marketplace shopping centres; one proposed site was near Rosemeadow. This site was subsequently sold to Leda Holdings. The person responsible for leasing the centre was confident of the successful leasing of the majority of shops due to the favourable response that was elicited when Woolworths intended to construct. The person responsible for leasing contacted Oraka Pty Ltd who was the master NSW franchises for ‘Wendys’ ice cream shops.

Wendys’ shops required substantial passing crowds of shoppers for their success and Leda was prepared to give Wendys exclusivity for the sale of ice-cream and doughnuts at the centre.

Oraka was allegedly told on several occasions that things were going to plan, and was subsequently told that the premises would be full when it opened, however this was not the case. A Letter of Intent, indicating interest to take a lease was subsequently signed. Leda and Oraka attended a meeting where terms of the lease were to be discussed, and Oraka gained the view that there was nothing to worry about even though if the true position was known it would have been unlikely that  the lease would have been entered into.

ISSUE

Had Leda Pty Limited contravened s52 of the Trade Practices Act ‘misleading and deceptive conduct’ by failing to correct the erroneous views of Oraka Pty Limited?

FINDING

It was found that the Respondent did breach s52 by failing to correct a wrong impression.

QUOTE

Justice Burchett said:

“In my opinion the execution of these [lease] documents not only followed hard upon the holding of the [last] meeting…, but was induced by the specific representation made by Leda at that meeting.

But if [Leda] had remained silent, as the respondent asserts he did and the documents had been executed in those circumstances, the respondent’s case would have been no better. For it is clear that there had been no correction,during the whole of the month preceding the meeting, or at the meeting, of what 1 am satisfied were the earlier optimistic forecasts put to [Oraka],  although Leda knew that the prospects for the letting of the shops at the shopping centre had turned out to be extremely poor. …I am satisfied that at no time was [Oraka] told enough to correct the wrong impression …

In the circumstances, Leda was guilty of engaging in misleading and deceptive conduct… There was plain and obvious cause to account for the losses, being the state of the shopping centre, in which numbers of other tenants were also complaining, and in my opinion the damages proved by Oraka are attributable to the contravention’s of s52 that 1 have found…”

IMPACT

In the situation where leasing of a new development is occurring, every effort should be made to ensure that only accurate statements are relied upon and made.

If a wrong impression is gained at some stage prior to entering into the lease, by the potential lessee then every effort should be made to clarify that impression.

Moonlighting International v International Lighting

MOONLIGHTING INTERNATIONAL PTY LTD V INTERNATIONAL LIGHTING PTY

LTD & ORS [2000] FCA 41

Federal Court of Australia – 31 January 2000

FACTS

Moonlighting was the exclusive distributor for Australia of products manufactured by Kim Lighting, a company from California. Kim Lighting wished to appoint International Lighting as its exclusive distributor for Australia and on 8 November 1999 it sent a notice of termination of the distributorship to Moonlighting purporting to terminate the distributorship from 1 December 1999.

Moonlighting claimed that it should have been given six months’ notice of termination and issued legal proceedings in theFederal Court.

Moonlighting sought interlocutory injunctions to restrain Kim Lighting from acting on its termination of the distributorship and to restrain Kim Lighting and International Lighting from claiming that International Lighting was the exclusive Australian distributor of Kim Lighting’s products.

ISSUES

Did the law of Victoria or California apply to the distributorship contract?

Was there an arguable case that Kim Lighting had failed to give reasonable notice which would justify an interlocutory injunction to prevent Kim Lighting acting on its termination?

Should the Court grant an interlocutory injunction to prevent Kim Lighting and International Lighting claiming that International Lighting was the exclusive Australian distributor?

FINDING

Most of the parties’ obligations under the distributorship contract were to be performed in California, and therefore the law of California governed the contract. However as there was no evidence before the Court about Californian law on this point the Court applied the law of the forum, namely Victoria.

There was an arguable case that Kim Lighting had failed to give reasonable notice of the termination and the balance of convenience favoured the granting of an interlocutory injunction to restrain Kim Lighting from acting on the termination until 30 April 2000.

If Kim Lighting and/or International Lighting represented that International Lighting was the exclusive Australian distributor then they would be engaging in misleading and deceptive conduct contrary to section 52 of the Trade Practices Act. Therefore there was no need to grant the second interlocutory injunction.

QUOTE

Finkelstein J said:

“I do not doubt that it will often be the case that before a distributorship agreement entered into for an indefinite period can be terminated the distributor should be offered a reasonable opportunity to recover his setting up expenses. It is reasonable to suppose that the parties enter into a distributorship agreement on the basis that it wouldcontinue for at least so long as was necessary for the distributor to recover his initial outlay.”

IMPACT

This case is a reminder of the need to give reasonable notice of termination of a commercial contract. It can be difficult to determine what reasonable notice would be in any given situation. This uncertainty can be avoided by having a properly drafted termination clause in a contract which gives one or both parties the right to terminate provided established conditions are satisfied and which specifies a fixed notice period for terminating the contract.

Janssen-Cilag v Pfizer

JANSSEN-CILAG PTY LIMITED V PFIZER PTY LIMITED (1992) ATPR 41-186

Federal Court of Australia – 8 September 1992

FACTS

The Federal Court found that certain representations made by the Pfizer contravened s52 of the Trade Practices Act and granted injunctions against Pfizer to restrain the further making of these representations.

ISSUE

Whether the entitlement to recover loss or damage under s82 of Trade Practices Act is confined to a person who relied on the representation which constituted a contravention of a provision of Part IV or V of the Act.

FINDINGS

There is nothing in the language or the purpose of the Act to suggest that the right of an applicant to damages under s82 is confined to the case where he relied upon or was personally influenced by the conduct of Pfizer. The words are of general application and are not confined to person who rely on the representations which constitute contraventions of provisions of Pt IV and V of the Act.

QUOTE

Lockhart J:

“Section 82(1) should not be given a restricted meaning to be available only to the person who suffers loss or

damage by reason of his own reliance upon the representations which constituted the relevant contravention of Part IV or V; nor for that matter should it be given an extended meaning which strains the language used by the legislature.

But a person who suffers damage by reason of or as a result of the conduct of the contravener (albeit that that person does not himself rely upon the representations) is not to strain the language of the subsection, but to interpret it according to its ordinary and natural meaning.

For a person to recover under the section he must suffer loss or damage by reason of or as a result of the contravention. There is nothing unduly wide about that.”

IMPACT

This interpretation of this provision will allow rival traders to claim against other companies for loss suffered as a result of misrepresentations under s52 of Trade Practices Act, so long as they may prove loss related to the misrepresentation.

Heller Financial Services v Thiess Contractors

HELLER FINANCIAL SERVICES LTD V THIESS CONTRACTORS PTY LTD [2000] FCA 802

Federal Court of Australia – 16 June 2000

FACTS

Thiess was the head contractor on three separate contracts and engaged KF Air as a subcontractor for each contract. Thiess allegedly owed money to KF Air for progress claims and retention monies. KF Air had assigned its book debts to Heller and Heller had given notice to Thiess of the assignment of the debts. KF Air went into receivership and then liquidation and the debts allegedly owed by Thiess to KF Air remained unpaid.

Heller issued legal proceedings against Thiess seeking payment of the outstanding debts. Heller also claimed that Thiess had breached a duty of care owed to Heller and had also engaged in misleading and deceptive conduct in breach of section 52 of the Trade Practices Act 1974.

The subcontracts between Thiess and KF Air included an arbitration clause and Thiess applied for a stay of the court proceeding on the basis that the dispute should be referred to arbitration.

ISSUES

Was Heller bound by the arbitration clause in the contracts between Thiess and KF Air?

Should the Court stay the legal proceedings?

FINDING

While Heller was not a party to the arbitration agreement it was bound by the agreement as it was a “party” to the arbitration agreement for the purpose of the Commercial Arbitration Act. The definition of “party” in section 4 the CommercialArbitration Act provides that a party is “any person claiming through or under a party to the arbitration agreement.” Heller was claiming  through a party to the arbitration agreement.

Heller had issued separate legal actions against Thiess that arose not from the debts outstanding but from the process of the assignment of the debts. Heller had those causes of action independently of KF Air’s actions against Thiess and those claims were not covered by the Commercial Arbitration Act.

The claims for payment of the outstanding debts were covered by the Act and a stay could be ordered. However the Court considered that all the claims were all related and should be heard together in the Court. Therefore the Court decided not to order a stay of the proceedings.

QUOTE

Heerey J said:

“Were the present proceeding confined to KF Air’s claims and Heller’s claims as assignee of KF Air’s debts, there is no doubt that a stay should be granted.

However, Heller also has separate claims arising out of the alleged negligence and misleading and deceptiverepresentations of Thiess. These are independent causes of action which Heller has in its own right, they are not derived ‘through or under’ KF Air. Therefore the Heller negligence and s 52 claims cannot be the subject of a stay.

They are not caught by the Commercial Arbitration Act because in respect of them Heller is not ‘a party to an arbitration agreement’.”

IMPACT

A person may be bound by an arbitration agreement in respect of some claims but not others.

In that circumstance the Court has a discretion about staying legal proceedings. Usually the most convenient forum for the claims will determine whether an arbitration will be ordered or whether the litigation will continue.

Hughes Aircraft Systems Int v Air Services Australia

HUGHES AIRCRAFT SYSTEMS INTERNATIONAL V AIR SERVICES AUSTRALIA (1997) 146 ALR 1

Federal Court of Australia – 30 June 1997

FACTS

Hughes Aircraft Systems International (“Hughes”), a Californian company, was the unsuccessful tenderer in a two party bid for the award of The Australian Advanced Air Traffic System (“TAAATS”) released by Air Services Australia (“Air”), a statutory corporation of the Commonwealth. The successful tender was Thompson Radar Australia Corporation (“Thompson”).

Air, Hughes and Thompson entered into a contract as to the process of the tender. Air initially recommended Hughes as the preferred contractor, but after several revisions of the tender process and a price reduction by Thompson, recommended Thompson as the preferred contractor.

Hughes’ claimed that Air by contract obliged itself to conduct the tender process leading to the award of the TAAATS contract fairly and ensure equal opportunity to Hughes and Thompson.

ISSUE

Whether there was an implied term of good faith and fair dealing.

FINDING

The Court confirmed that for a term to be implied it must be reasonable and equitable; necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; so obvious that it goes without saying; capable of clear expression; and must not contradict any express term of the contract.

The Court held that the community expects standards of fairness in contracts which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance.

The Court found that CAA acted in breach of its implied duty to act in good faith and fair dealing by failing to evaluate the tenders in accordance with the request for tender.

QUOTE

Finn J at 37 commented:

“Fair dealing is a major (if not openly articulated) organising idea in Australian law… the implied duty is, as is well known, an accepted idea in the contract law of the United States… Its status in civil law is well recognised…[and a] more open recognition in our own contract law is now warranted.”

Finn J continued at 37:

“…I consider a virtue of the implied duty to be that it expresses in a generalisation of universal application, the standard of conduct to which all contracting parties are to be expected to adhere throughout the lives of their contracts. It may well be that, on analysis, that standard would be found to advance little the standard that presently may be exacted from contracting parties by other means… But setting the appropriate standard of fair dealing is, in my view, another matter altogether from acceptance of the duty itself.”

IMPACT

As the Courts expect a standard of fairness in contracts, a duty upon the parties of good faith and fair dealing in the performance of contracts may be implied and compliance with an agreed tender process is covered by the duty.

Ferntree Homes v Bohan

FERNTREE HOMES PTY LTD V BOHAN [2002] FCA 16

Federal Court of Australia (Full Court) – 18 January 2002

FACTS

Ferntree sued Bohan for breach of copyright in building plans for a project home known as Golden Fern MK2.

The Bohans constructed a home on land in accordance with plans produced by Mr. Dean, an architectural draughtsman. The final structure was very similar in design to the Golden Fern design. The Bohans conceded that the Golden Fern plans were an original artistic work for the purposes of the Copyright Act and that there was copyright on those plans under the Act.

However, the Bohan’s and Mr. Dean denied that the plans were in any way derived from the plans for Golden Fern and argued that any similarities were coincidental.

ISSUES

Did Mr. Deans plans and the home constructed sufficiently resemble the plans for Golden Fern or a substantial part of those plans?

Was there the required causal link between Ferntree’s plans and Mr. Dean’s plans and the house constructed?

FINDING

The question of whether the plans for Golden Fern were substantially copied in the Bohan’s plans was a qualitative and not something that could be measured from the number of differences and number of similarities. It was held Ferntree Homes were not able to sufficiently show that there was a causal link between Mr. Dean’s plans and the

Golden Fern Plans and therefore there was no breach of copyright. The judge accepted the Bohan’s evidence as to why certain features were included in the plans, which were similar in design but not derived from the plans for Golden Fern.

Further there was not significant evidence produced to show that either Mr. Dean or the Bohan’s had visited the display homeor had access to the plans for the Fentree home.

 QUOTE

“In a case of alleged infringement of plans of a project home, it may be proper to infer the necessary causal linkbetween the copyright plans and those of the alleged infringer from the similarities between the two, coupled with the access which the drawer  of the alleged infringer’s plans had to the copyright plans.

It is not necessary that the person who drew the later plans should have copied the copyright plans deliberately or intentionally: the causal link may be present even though that person was unaware of the impact which the copyright plans was having upon him or her.

But there must have been access to the copyright plans either directly, or indirectly such as through a reproductionof them in three-dimensional form.”

 IMPACT

For the owner of copyright in a project home to show that a person has breached that copyright they must first be able to prove that there are substantial similarities between the two plans.

Secondly, the owner must prove that the drawer of the second plan had access to the plans or a version of the plans to prove that the original plans were in contemplation when the second plans were drawn up.