Instant Colour Pty Ltd & Ors v Canon Australia Pty Ltd & Anor [1996] FCA 763

CATCHWORDS

EQUITY - fraudulent misrepresentation - sale of colour photocopiers - whether absence of basis for honest belief in representations concerning performance

CONTRACT - breach - collateral warranty - sale of colour photocopiers - whether representations collateral - whether breach causative of loss

TRADE PRACTICES - sale of colour photocopiers - representations concerning machine - whether misleading and deceptive - whether false - whether relied on - whether loss occasioned by reliance

NEGLIGENCE - sale of colour photocopiers - representations concerning machine - whether made negligently - whether relied on - whether loss caused by reliance

SALE OF GOODS - sale of colour photocopiers - whether unfit for their purpose

DAMAGES - exemplary damages - whether applicants rights contumeliously disregarded - whether award appropriate

Property Law Act 1969 (WA), s20

Sale of Goods Act 1895 (WA)

Trade Practices Act 1974 (Cth), ss51A, 51A(1), 51A(2), 52, 53(a), 82 and 82(2)

Akerhielm v De Mare [1959] AC 789

cf Allen v Tobias (1958) 98 CLR 367

Annand & Thompson Pty Ltd v Trade Practices Commission (1979) 25 ALR 91

Arcadi v Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473

Ashington Piggeries v Christopher Hill Ltd (1972) AC 441

Australian Knitting Mills Limited v Grant (1933) 50 CLR 387

Ballantyne v Raphael (1889) 15 VLR 538

Bill Acceptance Corporation Limited v GWA Limited (1993) 78 FLR 171

Brambles Holdings Ltd v Carey (1976) 15 SASR 270

Coleman v Gordon M Jenkins & Associates Pty Ltd (1989) ATPR 40‑960

Collins Marrickville v Henjo Investments Pty Ltd (1987) 72 ALR 601; ATPR 41‑822

cf Concrete Constructions NSW Pty Ltd v Nelson (1991) 169 CLR 594

Corbridge v Bakery Factory Fun Shop Pty Ltd (1984) ATPR 40-493

Dare v Pulham (1982) 148 CLR 658

Ducret v Chaudhary's Oriental Carpet Palace Pty Ltd (1987) 16 FCR 562

Dunlop v Woollahra Municipal Council (1975) 2 NSWLR 446

Ellul v Oakes (1972) 3 SASR 377

Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd (1987) 75 ALR 271

Fenech v Sterling (1983) 79 FLR 244

Frith v Gold Coast Mineral Springs Pty Ltd (1983) 65 FLR 213

Ford Motor Co v Nowak 638 SW 2d 582 (Tex Div App 1982)

cf Four Square Stores (Qld) Ltd v ABE Copiers Pty Ltd (1981) ATPR 40,232

Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1

Gould v Vaggelas (1984) 157 CLR 215

Grant v Australian Knitting Mills Limited (1935) 54 CLR 49; [1936] AC 85

Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82

Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Ltd (1978) 140 CLR 216

Hughes and Whitby Enterprises Pty Ltd v Canon Australia Pty Ltd and Anor (Jenkinson J, 1 October 1990, unreported)

James v ANZ Banking Group Ltd (1986) 64 ALR 347

Janssen-Cilag Pty Ltd v Pjizer Pty Ltd (1992) 37 FCR 526

Johns-Manville Sales Corp v Janssens 463 So 2d 242 (Fla Dist Ct App 1984)

Jones v Dunkel (1959) 101 CLR 298

Keehn v Medical Benefits Funds of Australia Ltd (1977) 14 ALR 77

Krakowski v Eurolynx Properties Pty Ltd (1995) 69 ALJR 629

Re La Rosa and Anor; Ex parte Norgard v Rodpat Nominees Pty Ltd and Anor (1991) 31 FCR 83

Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458

March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506

Milner and Ors v Delita Pty Ltd and Ors (1985) 61 ALR 557

Mister Figgins v Centrepoint (1981) 36 ALR 23

Munchies Management Pty Ltd & Anor v Belperio & Anor (1988) 11 ATPR 50,026

Musca & Ors v Astle Corporation Pty Ltd and Anor (1988) 80 ALR 251

Mutual Life & Citizens Assurance Company Limited v Evatt (1970) 122 CLR 628

Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449

Netaf v Bikane (1990) 92 ALR 490

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 42 ALR 1

Potts v Miller (1940) 64 CLR 282

cf R v Sekhon (1986) Cr App R 19 (CA)

No 1 Raberem Pty Ltd and Ors v Monroe Schneider Associates (Inc) and Anor (von Doussa J, 8 February 1991, unreported)

Ricochet v Equity Trustees (1993) 113 ALR 30

Rumpe v Camrol Pty Ltd (1985) ATPR 40-522

San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340

JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435

L Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225

Smolonogov v O'Brien (1982) 67 FLR 311

Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 40 ALR 177

Tesco Supermarkets Limited v Nattrass [1972] AC 153

The Ophelia [1916] 2 AC 206

Vlasic and Others v Federal Capital Press of Australia Pty Ltd and John Fairfax and Sons Ltd (1976) 9 ACTR 1

Walker v Walker (1937) 57 CLR 630

Wardley Australia Ltd v Western Australia (1992) 175 CLR 514

Welcher v Steain [1961] NSWR 1136

Wheeler Grace & Pierucci Pty Ltd v Wright & Anor (1989) 11 ATPR 40-940

Willis v David Jones Ltd [1934] SR(NSW) 303

INSTANT COLOUR PTY LTD (ACN 009 300 501) AND BRIAN IVEY AND MATTHEW FERGUSON AND NEVILLE CHARLES QUARTERMAINE AND EDWIN BENNETT IVEY AND RICHARD THOMAS MINCHERTON AND CANON AUSTRALIA PTY LTD (ACN 005 002 951) AND CANON FINANCE AUSTRALIA LTD (ACN 003 637 116)

NO WAG 93 of 1991

R D NICHOLSON J

PERTH

28 AUGUST 1996

IN THE FEDERAL COURT OF AUSTRALIA )

WESTERN AUSTRALIA DISTRICT REGISTRY )

GENERAL DIVISION ) NO WAG 93 OF 1991

B E T W E E N: INSTANT COLOUR PTY LTD

(ACN 009 300 501)

First Applicant

and

BRIAN IVEY

Second Applicant

and

MATTHEW FERGUSON

Third Applicant

and

NEVILLE CHARLES QUARTERMAINE

Fourth Applicant

and

EDWIN BENNETT IVEY

Fifth Applicant

and

RICHARD THOMAS MINCHERTON

Sixth Applicant

and

CANON AUSTRALIA PTY LTD

(ACN 005 002 951)

First Respondent

and

CANON FINANCE AUSTRALIA LTD (ACN 003 637 116)

Second Respondent

MINUTE OF ORDER

JUDGE MAKING ORDER: R D NICHOLSON J

DATE OF ORDER: 28 AUGUST 1996

WHERE MADE: PERTH

THE COURT ORDERS THAT:

1. The application be dismissed.

2. The applicants file written submissions as to costs within seven days, with answering submissions from the respondents within a further seven days.

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

IN THE FEDERAL COURT OF AUSTRALIA )

WESTERN AUSTRALIA DISTRICT REGISTRY )

GENERAL DIVISION ) NO WAG 93 OF 1991

B E T W E E N: INSTANT COLOUR PTY LTD

(ACN 009 300 501)

First Applicant

and

BRIAN IVEY

Second Applicant

and

MATTHEW FERGUSON

Third Applicant

and

NEVILLE CHARLES QUARTERMAINE

Fourth Applicant

and

EDWIN BENNETT IVEY

Fifth Applicant

and

RICHARD THOMAS MINCHERTON

Sixth Applicant

and

CANON AUSTRALIA PTY LTD

(ACN 005 002 951)

First Respondent

and

CANON FINANCE AUSTRALIA LTD (ACN 003 637 116)

Second Respondent

CORAM: R D NICHOLSON J

DATE: 28 AUGUST 1996

PLACE: PERTH

REASONS FOR JUDGMENT

INDEX Page No

Preliminaries 2

Witnesses credibility

Use of Ivey's proof of evidence

Paragraph numbers

Background Factual Matrix 5

Market release

Machine drums

The initial representations

The first agreement

The second agreement

The further representations

The variation agreement

The continuing representations

The expansion to the Eastern States

Machine history

The business failure

The Hughes case

Nature of the Claims 13

Making of Representations 15

The initial representations

Copies between service calls

Response time of service technicians

Duration of service

Sales of 4,000 copies per month

Likely profitability

Resale value

Copy quality: Video statements

Ease of operation

The further representations

Copy quality: Internal Sales Manual

statement

The continuing representations

Training new technicians

Effect of damp paper

Service in every major centre

Total commitment to machines

and first applicant

The new drum

Fraudulent Misrepresentations 20

Breach of collateral warranty 22

The initial representations

The further representations

The continuing representations

Trade Practices Act Remedies 26

Negligent Misstatement 29

Non-fraudulent representations

Fraudulent representations

Reliance and Causation 34

The law

The initial representations as an inducement

to the first agreement

The initial and the further representations

as inducements to the second and variation

agreements

The initial, the further and the continuing

representations as inducements to the further

purchases and leases and the continuance of

the business

Merchantability 44

Exemplary Damages 49

Conclusion 51

TABLE 9-10

Table - Machine History as

pleaded by both parties

APPENDICES

Appendix `A' 52

Qualifications and occupation of parties,

witnesses and other relevant persons

Appendix `B' 58

Evidence relating to the making

of representations

(A) The initial representations

Representations concerning servicing

Representations concerning sales

and profitability

Relationship to competitors

Resale value

Copy quality

Ease of operation

(B) The further representations

Copy quality

(C) The continuing representations

The October meeting

Complaints concerning performance

and servicing

Training new technicians

Constant improvement in copy quality

Upgrading machine with improved parts

Representation concerning effect of

damp paper

Placing service problems under control

The Burswood meeting

Complaints

Service in every major centre

Provision of service

Total commitment to machines and

first applicant

Meeting at Canon's Perth office and

at Subiaco

Leases without a need for a guarantee

or security

The Sydney meeting

Offer to lease without security

No new version of copier

Representations concerning the new drum

Appendix `C' 107

Fraudulent Misrepresentations

The case for the applicants

Copies between service calls

Representations concerning copy quality,

capacity to produce copies from slides and

negatives and the ease of operation

The case for the respondents

The remainder of the representations

Appendix `D' 126

Trade Practices Act Remedies

Response time of service technicians

Sales of 4,000 copies per month -

Likely profitability

Resale value

Copy quality (slides/negatives)

Ease of operation

Service in every major centre

Representations concerning the drum

Appendix `E' 132

Reliance and Causation

The initial representations as an

inducement to the first agreement

The initial and the further

representations as inducements

to the second and variation agreements

The initial, the further and the

continuing representations as inducements

to the further purchases and leases and the

continuance of the business

This is an action in which the applicants allege the respondents misrepresented the true character of the Canon Colour Copier known as the CLC1 or CLC100 with the result that the applicants have suffered loss and damage in their business of colour photocopying.

PRELIMINARIES

The first applicant brings these proceedings as trustee of the Imageland Unit Trust. The second to sixth applicants are directors and shareholders of the first applicant. The applicants will each be referred to by their proper name. The second and fifth applicants will be referred to as Ivey and Ted Ivey respectively.

The respondents are companies duly incorporated in Victoria and in New South Wales. The first respondent will be described as "Canon" and the second respondent as "Canon Finance". Canon's parent company is incorporated in Japan and is referred to as "Canon Inc."

The CLC1 or CLC100 copiers are referred to as "machines" or "copiers". Other models are designated by their numbers.

Witnesses

Witnesses will be referred to by their proper name.

The qualification, occupation and former positions of all parties, witnesses and other persons referred to in the reasons are set out in Appendix A.

The witnesses called for the applicants were the applicants Ivey, Ferguson, Quartermaine, Ted Ivey and Mincherton; former Canon employees Pinkerton, Guy and Gill; proprietors of Canon machines Holman, Lynch and L Shadbolt; Instant Colour employees Cost, Manuel, Budden, K Ivey and K Shadbolt; the second applicant's
sister Miller and the applicants' solicitors Doncan and Taylor. Expert witnesses called for the applicants were Pinkerton, Cubitt, Cook, Hinton, Davey and Bateman.

The witnesses called for Canon were its employees or former employees Blandford, Richardson, Pleuss, Heddle, Kenney, Stokes, Dobson, Lagos, Tick, Furey, Pickup, Houghton, Channing and Germanos. Soma, an employee of Canon Inc, was also called. An accountant, Pickup was called as an expert witness. Other witnesses were Lindsay, Jackson, Tripp, Lupi, Lake, Blundell and White.

Credibility

For the respondents it is contended Ivey should be viewed as an unreliable witness who tailored evidence to suit the applicants' case. It is submitted the source of Ivey's credibility problem is that he kept on acquiring or proposing to acquire machines until as late as October 1989. Accordingly, it is said, the applicants' case had to be put that he relied on continuing assurances from Canon all problems would be fixed.

The impression which I formed of Ivey's evidence at trial was not such as to lead me to consider he was not an honest witness doing his best to put his view of events. In my opinion, his evidence is to be taken as it was given. It should be weighed in the context of the other available evidence on each issue. In this respect it is significant there is no credibility attack on Ted Ivey, Quartermaine or Mincherton who corroborate Ivey's evidence in some instances on which his credibility is attacked. The issues raised under this head on behalf of the respondents are matters which go to the issues of reliance and causation and are considered there. I do not consider the evidence of Ivey taking money from the till or Ivey's evidence of the repayment of his scheme creditors either alone or in conjunction with other matters raised for the respondents leads to a conclusion Ivey should not be believed so far as his evidence finds credibility
in the context of all other evidence on the same issue.

From my observations of Ferguson I reach the same view in relation to him.

The case for the applicants invites general adverse credibility findings against Stokes, Richardson, Soma, Dobson and Germanos, witnesses for the respondents. The case argued in support is based on inconsistencies in evidence. From by observation of the witnesses I do not consider any general credibility findings are appropriate. The reliability of particular evidence of these witnesses is best addressed in the context of each particular issue.

Use of Ivey's proof of evidence

During the trial a ruling was given that Ivey's proof of evidence from which he had refreshed his memory, notwithstanding it was a privileged document apart from that act, should be made available to counsel for the respondents for inspection without penalty. Subsequently, at the end of Ivey's cross-examination, counsel for the respondents tendered the proof "at my learned friend's request". It is now sought on behalf of the applicants to rely on the proof. Objection is taken to that course on behalf of the respondents.

There is authority that in such circumstances the document which is inadmissible thereby becomes evidence: Walker v Walker (1937) 57 CLR 630; cf Cross on Evidence, 4th ed, (1991) at 439, par17240; see also at 101, par1665.

In reliance on this, the case for the applicants seeks to use the exhibited proof as the sole source of proof of matters which did not emerge in Ivey's evidence.

In cross-examination of Ivey, counsel for the respondents stated he would put a number of matters to Ivey arising from the proof. The question therefore arises whether the tender of the proof in the circumstances was made only for the trier of fact to follow the cross-examination of the witness: cf R v Sekhon (1986) Cr App R 19 (CA). No such qualification was made in the tender and, given the right in the applicants to make an unqualified call for the proof, I do not consider any such limitation can be implied.

Nevertheless, there is the question of whether evidence in the proof is to be accorded probative status when there is no other evidence available on a point. That issue falls for judgment in the context of the trial: it was lengthy, detailed and particular. Every aspect of the applicants' case was closely cross-examined. Finding a fact proved on the basis of Ivey's proof of evidence when that fact did not form part of his oral evidence and was not subject to cross‑examination, is out of accord with the parties' rigorous approach to all other aspects of the case.

In my opinion, while I accept the proof forms part of the evidence before me, I assess its weight in the context of the trial. Doing that, I am not prepared to rely on it where it is the sole evidence of the fact in issue and has not been subject to cross-examination.

Paragraph numbers

The numbers used in conjunction with the representations and warranties contended for in the applicants' case and the defence in the respondents' case are the paragraph numbers in the minute of amended substituted statement of claim and the defence to it respectively.

BACKGROUND FACTUAL MATRIX

Market release

From May to September 1987 Canon Inc tested the CLC1 machine in Japan. It released the machine on the Japanese market in April 1987.

The machine was released on the Australian market in October/November 1987.

Machine drums

In January 1987 a problem described as "banding" of copies was known in Japan and ascribed to that part of the machine known as the drum. A "first generation drum" was succeeded by a "second generation drum" installed between May and July 1988. In late December 1988 and early January 1989 Canon Inc sent Canon five "third generation" test drums . Four were tested in Sydney and Melbourne. A small shipment of the "third generation drum" arrived at the end of January for installation where most required. Dobson advised Pinkerton testing showed the new drum was effective in eliminating banding.

The initial representations

On 8 July 1988 Adolphe demonstrated the copier to Ivey and Ferguson at the Whitford City Shopping Centre. Between 12-19 July 1988 he is alleged to have made certain representations and warranties. He supplied them with a video on the machine in which it is admitted certain statements were made which the applicants contend constituted representations and warranties. These oral and video representations are called "the initial representations".

The first agreement

Either on 19 July 1988, as the applicants allege, or on or shortly after 1 August 1988, as the defence alleges, Ivey and Ferguson trading as Imageland agreed with Canon to purchase two machines (224 and 203) for the sum of $51,950 each ("the first agreement"). At the same time they also entered into two Maintenance Guarantee Agreements with Canon. It is alleged they did so on the faith of the initial representations.

On 22 July 1988 Ivey and Ferguson registered the business name "Imageland". Around 1 August 1988 they commenced trading under that name as a business of copying, laminating and photo enlarging. They continued to conduct the business until around 12 September 1988 when it was transferred to Imageland Pty Ltd as trustee of the Imageland Unit Trust.

The second agreement

On the applicants pleading a further agreement ("the second agreement") was made on 24 August 1988 between Imageland and Canon for the purchase of a further three machines. The price for each was $46,950. Maintenance Guarantee Agreements were entered into for each of them.

The further representations

For the applicants it is pleaded that during the period August 1988 to September 1988 further representations and warranties ("the further representations") were made to it by Canon in respect of the machines either in the Canon Internal Sales Manual entitled `Intelligent Colour' or by Adolphe.

The variation agreement

Again on the applicant's pleading, around 26 September 1988 Canon and Imageland entered a variation agreement to the second agreement ("the variation agreement"). It is claimed this had the effect of increasing the purchase in the second agreement by five machines to eight machines at the cost of $40,940 each, with associated Maintenance Guarantee Agreements being concluded.

The applicants plead that induced by and in reliance on the further representations they entered into the variation agreement
and continued their business. The words in the Internal Sales Manual are admitted as is the continuance of the business by the applicants.

The continuing representations

Turning to the position between October 1988 and January 1989, the pleaded case for the applicants alleges additional representations and warranties ("the continuing representations") were made by representatives of Canon to the applicants. It is alleged these were made at a meeting at Canon's Perth office, a further meeting around 24 November 1988 at Burswood International Hotel, Perth ("the Burswood meeting") and a meeting at the Perth office of Canon and later at Subiaco around December 1988. Additionally an admitted letter sent around 24 January 1989 by Canon to Instant Colour ("the Richardson letter") is claimed to contain a representation and warranty.

Two further source of representations and warranties are claimed in the applicants' case. The first is "the Sydney meeting" said to have occurred at Canon's Sydney office around 16 February 1989. The second were alleged oral statements said to have been made on behalf of Canon by Manuel and Heddle around 7 March 1989 and known as "the March representations".

The expansion to the Eastern States

At the time of the Burswood meeting the applicants were considering extending the operation of their business into other Australian States ("the Eastern States"). On 1 February 1989 Ivey moved to Sydney to supervise this extension.

Machine history

Table 1, which follows,summarises the pleadings of both the applicants and the respondents in relation to the machines purchased or leased and the agreements entered into in relation to those dealings.

TABLE

MACHINE HISTORY AS PLEADED BY BOTH PARTIES

Machine No	Order No	Maintenance Guarantee Agreement - Order Form Date	Invoice Date	Delivery Date	Lease Agreement Date	Lease Invoice Date	Lease Cancellation & Sale to First Respondent Date	Purchase _______________ 2nd Maintenance Guarantee or Order Form Date Cheque Date	Payment Date
FIRST AGREEMENT
224	Blank	19/7/88	4/8/88c	1/8/88					31/8/88c
203	Blank	19/7/88	25/8/88	22/8/88
SECOND AGREEMENT
242	270096	24/8/88	28/10/88	15/10/88					30/10/88c
337	270096	24/8/88	24/11/88	21/11/88					29/11/88
259	270096	24/8/88	17/10/88 (28/10/88)	17/10/88					30/10/88c
VARIATION AGREEMENT (Including Machines 242, 337 and 259)
334	270096	26/9/88	21/11/88 (24/11/88)	21/11/88					29/11/88
414	Blank	23/2/89 (17/2/89) (16/2/89)	28/2/89	20/2/89	24/2/89	28/2/89	0/3/89	17/2/8920/3/89	22/3/89c

Machine No	Order No	Maintenance Guarantee Agreement - Order Form Date	Invoice Date	Delivery Date	Lease Agreement Date	Lease Invoice Date	Lease Cancellation & Sale to First Respondent	Purchase ______________ 2nd Maintenance Guarantee or Order Form Cheque Date	Payment Date
381	Blank	16/2/89	31/3/89 (24/4/89)	31/3/89	15/4/89	24/4/89
VARIATION AGREEMENT
406	Blank	17/3/89 (23/2/89)	17/3/89	28/2/89 (3/4/89)	24/2/89	17/3/89	0/3/89	17/3/89 20/3/89	22/3/89c
443	116249	29/4/89 (24/4/89)	28/4/89	1/5/89	28/4/89	28/4/89
507	Blank	16/6/89			19/6/89
512	Illegible	7/6/89			19/6/89
627	3010	23/6/89			19/6/89
571	Blank	11/10/89
Applicant's Pleading	21,23	23	24.1	35.3, 36.2, 39.2, 40.2, 41	35.3, 36.2, 39.2, 40.2,	37	38

Key

c - circa

* - leased by Canon Finance

NB: Dates in brackets indicate alternative dates pleaded by respondent

Machines 224 and 203 were placed in Western Australia at various shopping centre locations. Machine 224 was relocated from Western Australia to Victoria and set up at the Chadstone City Shopping Centre on 17 or 24 April 1989. In early May it went to Southlands until its sale to Top Kat Pty Ltd in May 1990.

Machine 242 was located initially at Midland, Western Australia but from 2 May 1989 operated from Parramatta, New South Wales and was removed when Instant Colour was evicted from that site in May/June 1990. 337 was used in Western Australia and Warrawong, New South Wales (from June 1989) before sale to B Campbell in November/December 1989. By 15 May 1989 334 had been moved from the Western Australian locations to the Victorian location of Doncaster. It was sold to Vinbru Nominees Pty Ltd in early 1990.

On 20 February 1989 four lease of sites were entered into at the Westfield Shoppingtown Centre, New South Wales. Two days later the business name Instant Colour was registered in that State.

Around 24 February 1989 Canon Finance agreed to lease to Instant Colour machines 406 and 414 ("the 406/414 lease agreements"). In March 1989 the lease agreements were cancelled and on 20 March 1989 Instant Colour agreed to purchase from Canon machines 406 and 414 for a total of $81,880 ("the 406/414 purchase agreement"). Instant Colour then sold machine 406 to Grieves and machine 414 to Tassell and leased them back. Machine 406 was located at Roselands until its sale to a Ms Lupi in May 1990. As at October 1989 Instant Colour was still operating at Roselands from temporary premises. Machine 414 was installed at North Ryde then at Chatswood. From 29 May 1989 it was moved to Liverpool. It remained there until the end of October 1990 when it was removed to Western Australia and auctioned.

On 15 April 1989 Instant Colour entered into an agreement with Canon to lease machine 381 ("the 381 machine agreement"). It was installed at Centre Point Tower, Sydney at the end of March 1989
and then Miranda, New South Wales on 24 April 1989 and remained there until repossessed by Canon in November 1990.

By an agreement in writing made on 28 April 1989 machine 443 was also leased to Instant Colour by Canon ("the 443 lease agreement"). It was located at Northlands, Victoria until sale to Top Kat in May 1990. Instant Colour entered into a short term retail licence for these premises for a period of 12 months from 2 October 1989.

Machines 507, 512 and 627 were similarly leased on 19 June 1989 ("the 507, 512 and 627 lease agreements"). 507 was located at Noble Park, then Belmore and Lurmea prior to repossession by Canon in November 1990. After a short time at Brandon Park, machine 512 was located at Altona, Victoria from 16 October 1989 until its sale to Top Kat in June 1990. Ivey's evidence was that Instant Colour entered into a short term retail licence for the Altona premises for a period of 12 months from 2 October 1989. Machine 627 went to Corio, Victoria on 26 June 1989 and was sold to Top Kat in May 1990. It remained at Corio until October 1990.

Machine 571 was purchased by Instant Colour from Wrightfoot Pty Ltd on 28 June 1989. On 11 October 1989 Instant Colour entered into a Maintenance Guarantee Agreement with Canon in relation to this machine. It was operated by Instant Colour at Chadstone, Victoria. Ivey's evidence was Instant Colour entered into a short term retail licence for these premises for a period of 12 months as from 2 October 1989. Mallar Holdings Pty Ltd took over the account on 16 March 1990. Instant Colour took over again around 11 May 1990 and Top Kat purchased the machine around 27 June 1990. It was repossessed by a finance company in October 1990.

Machine 259 was bought by Instant Colour but was later on-sold to persons who are not parties to this action.

As has been seen, in May/June 1990 with the involvement of Instant Colour Top Kat took over the machines 224, 443, 512, 627 and 571. This followed an agreement between Instant Colour and Mallar Holdings Pty Ltd for the sale of the same machines, which agreement was not performed. As part of its purchase Top Kat assumed an indebtedness existing between Mallar and Canon.

The business failure

On 28 June 1989 Imageland Pty Ltd changed its name to Instant Colour Pty Ltd.

In September 1989 Canon released the CLC500 machine and followed that shortly with the release of the CLC200 machine.

Commencing in October 1989 Instant Colour sold or attempted to sell its various sites Australia wide. It ceased trading in early October 1990.

The Hughes case

On 1 October 1990 the decision in Hughes and Whitby Enterprises Pty Ltd v Canon Australia Pty Ltd and Anor (Jenkinson J, 1 October 1990, unreported), ("the Hughes case") was handed down in which Canon was held liable for statements made by its servant Ginnane in relation to the functioning of the machine. The liability was found to arise pursuant to s52 of the Trade Practices Act 1974 (Cth) ("the TPA") and the law of negligence. Damages were awarded.

The present proceedings were commenced by the applicants on 2 September 1991.

NATURE OF THE CLAIMS

The applicants case is that they were induced by and relied on the initial representations, the further representations and the continuing representations in not returning the machines, entering into the 406/414 purchase agreement, the 381 lease agreement, the 443 lease agreement, the 507, 512 and 627 lease agreements, in using the machines in their business and continuing to conduct that business.

These claims involve the assertion that at the time they entered into the variation agreement the applicants assumed the risk of being bound in contract so that the initial and further representations became a material cause of all their subsequent actions. Thereafter it is said the continuing representations bound the applicants more deeply into their business venture so that whether or not as a matter of law they could have withdrawn offers to buy machines, that was not a relevant consideration in their minds. As put on behalf of the applicants, there were two important factual considerations acting on their minds. Firstly, they had undertaken a significant step by signing order forms on 29 September 1988 so that it could not be said with certainty any withdrawal by them would be accepted. Secondly, the continuing representations made it unnecessary for them to give consideration to such a course of action because they believed the respondents' representatives.

This case is brought in reliance on breach of collateral warranty, fraudulent misrepresentation, ss52 and 53(a) of the Trade Practices Act, the law of negligence and breach of the warranty of merchantable quality. The applicants seek damages and exemplary damages.

The claims are alleged to be founded on what the applicants contend were the "poor performance and frequent servicing requirements" of the machines giving rise to "the breakdown problem". These are particularised in the applicants' case as frequent breakdowns in copy quality. The most frequent reasons for the breakdowns are said to have been the failure of various parts of the copier including the drums, coronas, transfer drum screen, OPC cleaning blade and the fixing unit (rollers and blade). Ivey testified that the problems included fading in copy colour, banding, lines, spots and oil marks as well as "phantom paper jams". Ferguson testified to similar effect, adding reference to defective reproduction of slides.

It is not in dispute the machines of the applicants did breakdown nor that when that occurred Instant Colour would telephone Canon and request a service.

The machines comprise a number of consumables and other parts. Evidence for Canon was these require frequent replacement. Soma regarded this as a basic characteristic of photocopiers. His evidence was that in the case of a colour photocopier the servicing requirements were greater than for black and white because the machine was inherently more complex and the instability of the image creation area was greater because four different toners are used and the process of image reproduction is repeated four times. That area is where the photosensitive drum, the toner and the paper meet.

MAKING OF REPRESENTATIONS

Based on the consideration of the evidence referred to in Appendix B I make the following findings of fact concerning the making of the representations pleaded.

The initial representations

(1) Copies between service calls (19.2)

On or about 12 July 1988 Adolphe on behalf of Canon represented to Ivey and Ferguson the CLC machines would each produce between 5,000 to 10,000 copies before they would need a service and a major service on each would be required at 20,000 copies.

(2) Response time of service technicians (19.4 and 19.29)

On or about the same date Adolphe represented to Ivey and Ferguson that Canon's target was to arrange a service technician to attend within 2 hours of a service call.

(3) Duration of service (19.29)

Between 12 to 19 July 1988 it was represented to the applicants by Adolphe that if a machine required a minor service for any reason, the service would take approximately 30 minutes to one hour.

(4) Sales of 4,000 copies per month (19.5 and 19.24)

On or about 12 July 1988 Adolphe represented to Ivey and Ferguson that Instant Colour could expect sales of 4,000 copies per month.

(5) Likely profitability (19.22 and 19.28)

Between 12-19 July 1988 it was represented to Instant Colour that the CLC machines would make a very lucrative business and if the machines were put in shopping centre malls they would be the first to do so and "should make a killing".

(6) Resale value (19.7 and 19.27)

On or about 12 July 1988 and between 12-19 July, 1988 Instant Colour was told by Adolphe for Canon that it would get approximately 60% of its purchase price back if it were to sell the CLC inside two years.

(7) Copy quality: Video statements (19.10-12, 19.14-15, 19.18)

The following representations were in a video given by Canon to Ivey:

"19.10 "...All this Canon technology was integrated to deliver the highest quality colour copies on plain paper, but that's just the beginning...";

19.11 "...The Colour Laser Copier goes beyond basic colour copying to create totally new images with its exclusive digital technology that manipulates both colour and image for unsurpassed creativity...";

19.12 "...For brilliant finished quality copies from any original, even 35mm positive slides and negative films, only Canon could make such impressive technology so simple. The copies is easily integrated into any office environment since it uses a regular power source of 115 vaults and plugs rights into the wall...";

...

19.14 "...By now you have seen that the Colour Laser Copier has extraordinary capabilities but in addition to these, it also has the ability to produce colour copies of colour slides and even negative film; brilliant copies as big as 11 x 17 and faithful to the original in every detail...";

19.15 "...There is no faster, more economical way to get brilliant full colour copies of positive slides and negative film..."

...

19.18 "...And that's just a sampling of all you can do with the Canon Colour Laser Copier, but while it does let you reproduce any image with unprecedented colour quality, there are still some things for legal reasons this copier should never copy, such subject matter includes any document issued by the United States Government or any of its agencies...";".

...

(8) Ease of operation (19.12-13, 19.16 and 19.17)

In the video the following representations were made concerning the ease of operation of the CLC machine:

"19.12 "...For brilliant finished quality copies from any original, even 35mm positive slides and negative films, only Canon could make such impressive technology so simple. The copies is easily integrated into any office environment since it uses a regular power source of 115 vaults and plugs rights into the wall...";

19.13 "...Let's look at the operation panel to see just how simple it is...";

...

19.16 "...Now that you have seen just some of what the Colour Laser Copier can do, let me show you have easy it is to keep your copier performing; it is so easy that most
maintenance tasks can be done by anyone who uses the copier...";

19.17 "...With such easy access, any paper jam can be cleared up right away...";".

The further representations

(9) Copy quality: Internal Sales Manual statement (25.1 and 25.2)

The Internal Sales Manual in which it is admitted there were statements that "the colour quality will be flawlessly crisp and clear every time" and "it is possible to make brilliant full-colour copies from 35mm slides and negatives" was delivered to Ferguson by Adolphe for Canon in August/September 1988 prior to the conclusion of the variation agreement.

(25.3 is a plea in the alternative to 19.7 and 19.27 which have each been made out so the alternative does not require

consideration.)

The continuing representations

(10)Training new technicians (28.2 and 28.5)

At the October meeting in response to Ivey complaining to Adolphe about poor machine performance and frequent servicing requirements, Stokes represented more technicians were being trained by Canon.

(11)Effect of damp paper (28.4)

At the October meeting Stokes represented that the applicants' quality problems were caused by damp paper.

(12)Service in every major centre (28.6(c))

A breakfast meeting was held at the Burswood International Hotel on 27 October 1988 which was attended by Ivey, Ferguson, Blandford and Kenny.

At the Burswood meeting the applicants raised the issue of copy quality and machine break-downs in the context of the availability of service if their business expanded interstate.

At the Burswood meeting Blandford represented Canon could give service in every major city of Australia.

(13)Total commitment to machines and first applicant (28.6(e))

At the Burswood meeting Blandford represented Canon were totally committed to the machines and to Instant Colour and said "...this is Canon you are talking to...".

(14)The new drum

(a) at the October meeting (28.5)

Stokes represented at the October meeting new parts were being developed which would improve the durability and performance of the copier.

(b) at the Burswood meeting (28.6(b))

At the Burswood meeting on 27 October 1988 Blandford represented to Ivey and Ted Ivey that a new, improved photosensitive drum had been developed in Japan and would be available in Australia in May 1989 and would be the answer to the problem of colour quality.

On or around 24 January 1989 Instant Colour received and read a letter from Canon under the signature of Richardson in which it was represented the new, improved photosensitive drum "was developed specifically to improve durability and therefore improve the overall performance and reliability of `the copiers'".

(d) the March representations (32)

On or around 7 March 1989 Heddle represented to Instant Colour that Canon had successfully tested a new, improved photo-sensitive drum in its Canon Colour Copy Shop in Sydney and it had done 2,000 copies without breaking down.

To the extent any of the applicants' pleaded representations are not reflected in any of the above findings they are not made out.

FRAUDULENT MISREPRESENTATIONS

It is the applicants case that Canon fraudulently made the representations and warranties at pars19.2, 19.8, 19.12, 19.13, 19.14, 19.18, 19.19, 19.20, 19.21, 25 (all in par51 of the amended substituted statement) and 28, 29, 31 and 32 (in par52 of that statement), either knowing them to be false or recklessly not caring whether they were true or false. Of these, 19.8, 19.19, 19.20, 19.21, and 31 do not require further consideration in the light of the findings earlier made.

It is accepted for the applicants that in order to succeed on these claims they must establish not only the falsity of the representations and warranties but also the knowledge by Canon of that falsity. In Krakowski v Eurolynx Properties Pty Ltd (1995) 69 ALJR 629 at 636 it was said by the majority that "in order to succeed in fraud, a representee must prove, inter alia, that the representor had no honest belief in the truth of the representation in the sense in which the representor intended it to be understood." The question is not whether Canon "honestly believed the representation to be true in the sense assigned to it by the Court on an objective consideration of its truth or falsity, but whether [it] honestly believed the representation to be true in the sense in which [it] understood it albeit erroneously when it was made": Akerhielm v De Mare [1959] AC 789 at 805-6.

To find fraud it is not necessary that there be any malign aspect, prior planning or evil motive: Krakowski at 637. This is important because the case for the respondents accepts the alleged representation concerning service calls, if found to be made out, was untrue but contends there is no plea or evidence to support the assertions about how the public was treated or that Canon was motivated by greed. As I read Krakowski it is not necessary for those ingredients to be made out to arrive at a finding of fraudulent conduct.

The standard of proof which applies to the applicants in respect of the pleading of fraud is that they must satisfy the Court on the balance of probabilities even though fraud is involved: Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 450.

The knowledge of Canon will be found from the knowledge of a person or persons so closely and relevantly connected with the company that the state of mind of that person or those persons can be treated as being identified with the company so their state of mind can be treated as being the state of mind of the company: Krakowski at 639 approving Brambles Holdings Ltd v Carey (1976) 15 SASR 270 at 279; see also at 275-6 and 281-2. Division of function among officers of a corporation responsible for different aspects of the one transaction does not relieve the corporation from responsibility determined by reference to the knowledge possessed by each of them: Dunlop v Woollahra Municipal Council (1975) 2 NSWLR 446 at 485; Tesco Supermarkets Limited v Nattrass [1972] AC 153 at 170.

Based on the findings in Appendix C I find Canon made the following representations without the basis for an honest belief in their truth and so made them fraudulently:

(a) 19.2: the CLC machines would each produce between 5,000 to 10,000 copiers before they would need a service and major service on each would be required at 20,000 copies (made with authority by Adolphe on or about 12 July 1988).

(b) 25: colour quality will be flawlessly crisp and clear "every time" (made in the Internal Sales Manual during the period August 1988 to September 1988).

BREACH OF COLLATERAL WARRANTY

In par19 of the statement of claim it is pleaded for the applicants that Canon agreed with Ivey and Ferguson the initial representations were an agreement collateral to the first agreement. This is understood for the respondents to mean Instant Colour is claiming against Canon damages for breach of contracts collateral to the contracts of sale between Instant Colour and Canon in relation to CLCs 224, 203, 242, 334, 337, 414 and 406 and breach of contracts collateral to the agreements for lease entered into between Instant Colour and Canon Finance in relation to CLCs 507, 512, 627, 381 and 443.

For a representation to constitute a warranty it must have the character of a promissory statement. In JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442 the High Court said the only statement which would support a collateral warranty was required to be promissory and not merely representational. See also Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1. The question is not governed by form but rather by consideration of whether in its context each statement is properly to be understood as an assumption of obligation: Cheshire & Fifoot's Law of Contract 6th Australian ed, (1992) 200, par414. The ultimate question is whether the person making the statement is to be taken to have warranted its accuracy, that is, promised to make it good: Ellul v Oakes (1972) 3 SASR 377 at 387.

For a warranty to be found to bind Canon in contract it is necessary that it be found the person making it had the requisite authority.

The initial representations

Apart from those made in the video, these were made by Adolphe. For the respondents it is argued that the case for the applicants does not plead any particular circumstances on which to found a conclusion Adolphe had express, implied or ostensible authority to enter into a binding agreement to effect the sale of the copiers acquired or leased by Instant Colour. Furthermore it is submitted for the respondents the evidence establishes Adolphe as an employee of Canon had authority as a sales representative. The applicants could not have understood or relied on him to have any authority to bind Canon contractually. It is contended the evidence shows only Adolphe arranged for the execution of order forms, a fact consistent with him not having any authority to make contractual promises for or on behalf of the Canon.

For the same reason it is contended Adolphe's representations could not constitute an expression of intention on the part of Canon to guarantee its truth.

The applicants' claim is put on the basis Adolphe was acting within the scope of his authority as a salesman of Canon in making the initial representations. The question then becomes whether there is evidence that any of the initial representations were within the scope of that authority.

In the case of 19.2 (copies between service calls) there is the evidence of Guy that salespersons were instructed by Kenny, Pleuss and Stokes to convey to purchasers the representation. Adolphe testified Pleuss so instructed him. The evidence is considered in Appendix B. In my opinion there is evidence Adolphe was expressly authorised to make this representation.

In the case of 19.7 and 19.27 (resale value) I do not consider there is any evidence of authority of Adolphe to make the representation as a contractual promise binding Canon: see the evidence considered in Appendix B.

The remainder of the initial representations were either not made in a context in which they were promissory statements or were not made with the necessary authority. I base this finding on the evidence considered in Appendix B. In particular, the representations made in the video, designed to promote the product to viewers at large more in the nature of puffery, are not in the nature of statements to be understood as a promise or assumption of contractual obligation.

So far as the initial representations are concerned, they were made in relation to the first agreement which was one to acquire machines 224 and 203. It was made with Ivey and Ferguson. The respondents contend the applicants have failed to prove there was any assignment of any of the rights acquired under the agreement made with them to Instant Colour. It is also contended they have failed to prove any assignment in accordance with the provisions of s20 of the Property Law Act 1969 (WA). However, it is admitted by the respondents that after the period from July to September 1988 , during which Ivey and Ferguson had conducted the business of colour photocopying, Ivey and Ferguson transferred the business and its name to Imageland Pty Ltd. That company as Instant Colour continued to run the business and made payments pursuant to the first agreement. The applicants therefore correctly contend the rights of Ivey and Ferguson under that agreement were assigned in equity to Instant Colour. The consideration for the assignment was the acceptance by Instant Colour of liability under the agreement.

Even if the assignment is not effective at law, Ivey and Ferguson are claimants for relief.

In my opinion the case based on breach of collateral warranty on representation 19.2 is limited to the first agreement. There is no evidence of oral agreements made with Adolphe in relation to the agreements made in July, August and September 1988. So far as the agreements made in 1989 are concerned, it cannot be said representation 19.2 was made with the intention and having the effect of inducing Instant Colour to lease agreements with Canon Finance a year later.

The further representations

Representation 25.1 ("flawlessly crisp and clear every time") is the nature of a promissory statement. However, there is no evidence of anything being said in relation to it, so that the context of its delivery is confined to the presentation of the document. The evidence of Blandford and Pleuss establishes Adolphe had authority to deliver the Manual but not that he had any authority to make contractual promises in its terms. Although the Manual was clearly designated as a document of Canon, I do not consider on the evidence it can be concluded this representation was promissory.

The representation in 25.2 addresses only possibilities and is not in the nature of a promissory statement.

The continuing representations

The representations concerning training new technicians (28.2 and 28.5) were statements of intention and not in their context promissory.

From consideration of the evidence in Appendix B I consider the representation concerning service in every major city (28.6(c)) and Canon's commitment to the machines (28.6(e)) were made by a person (Blandford) of sufficient authority to bind Canon and were made in a context (discussion of the expansion to the East by Instant Colour) where they were promissory.

Based on a consideration of the evidence in Appendix B I find none of the other continuing representations were made in their context as promissory statements leading to a contractual warranty in those terms.

For these reasons I conclude that the representations in relation to which the pleading concerning breach of collateral warranty requires consideration are:

19.2: copies between service calls (in relation to the first agreement only)

28.6(c): service in every major city

28.6(e): Canon's total commitment

In my opinion there is no evidence to support an allegation of breach of the collateral warranties 28.6(c) and (e). Canon did provide service in every major city and was committed to the machine. It follows that only 19.2 remains for consideration in relation breach of collateral warranty. There is abundant evidence 19.2 was breached and I so find.

TRADE PRACTICES ACT REMEDIES

It is the applicants' case the representations and warranties were made in trade or commerce within the meaning of the Trade Practices Act 1974 (Cth) and constituted conduct which was misleading or deceptive or was likely to mislead or deceive, contrary to the provisions of s52 of that act; or were false representations that the machines were of a particular standard quality or grade, contrary to s53(a) of that act.

It is admitted the respondents are a `corporation'. So far as representations and warranties were made they were part of conduct in trade or commerce: cf Concrete Constructions NSW Pty Ltd v Nelson (1991) 169 CLR 594 at 602.

Relevant to whether the representations and warranties are misleading or deceptive or likely to be such, s51A(1) of the TPA provides where a representation with respect to any future matter (including the doing of, or the refusing to do, any act) is made by a corporation which does not have reasonable grounds for making it, the representation shall be taken to be misleading.
The section further provides that the corporation shall be deemed not to have had reasonable grounds unless it adduces evidence to the contrary. The section only has application where the representation in question is a representation with respect to a future matter.

The authorities establish the conduct in question is not limited to knowing or intentional conduct: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Ltd (1978) 140 CLR 216 at 233; Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88. Conduct will be categorised as misleading or deceptive if it is characterised as inducing or capable of inducing error: Keehn v Medical Benefits Funds of Australia Ltd (1977) 14 ALR 77 or "leads into error": Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 42 ALR 1 at 6. It is not required it be demonstrated anyone has actually been misled: Annand & Thompson Pty Ltd v Trade Practices Commission (1979) 25 ALR 91 at 102; Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 40 ALR 177.

So far as s53(a) of the TPA arises, the applicants contend there is a breach of the proscription by the respondents that a corporation shall not falsely represent goods are of a particular quality.

The character of a representation said to be false or misleading is to be tested at the date of the making of the representation although this may be determined by reference to later events: Bill Acceptance Corporation Limited v GWA Limited (1993) 78 FLR 171 at 178 per Lockhart J.

In the case of predictive or promissory statements non-fulfilment of a prediction or promise may be evidence raising an inference such a risk of non-performance existed or that qualification prediction or promise was required: Wheeler Grace & Pierucci Pty Ltd v Wright & Anor (1989) 11 ATPR 40-940 at 50,251 per Lee J.

For the reasons set out in Appendix D I find the following representations were misleading and deceptive:

(a) 19.2: copies between service calls

(b) 19.7 and 19.27: resale value

(d) 25.1: copy quality "every time".

The applicants submit each of the representations also breach s53(a) of the TPA. The terms "standard" and "quality" have been discussed in Ducret v Chaudhary's Oriental Carpet Palace Pty Ltd (1987) 16 FCR 562 where it was held that both terms have a wide meaning. In relation to "standard" Ryan J held the term meant a "definite degree of any quality". In relation to "quality" it was held the term meant:

"extends beyond the degree or grade of excellence which a thing can be said upon physical examination to possess in comparison with others of a similar kind, and which includes the virtues, attributes, properties and special features of the thing".

On consideration of the evidence considered in appendices C and D in relation to pars19.2, 19.16 and 25.1 I consider those representations were made falsely.

In Ducret, Ryan J held that a representation that goods had a value that was ten times the market price of similar goods was not a representation the goods were of a particular quality or standard. In this case a statement that the goods would retain 60% of their purchase price was not a statement as to quality. Rather it was a statement in connection with the existence or likely existence of a secondary market for the CLC's. As such it does not relate to the CLC's quality or standard. In my opinion 19.7 and 19.27 do not breach s53(a).

The respondents plead that each cause of action by each applicant based on a breach of s52 of the TPA is barred by s82(2) of that Act. Section 82(2) provides an action under s82(1) may be commenced at any time within three years after the date on which the cause of action accrued. A cause of action under s82 accrues not when a breach of PtIV of PtV occurs, but when loss or damage is suffered as a consequence of such breach: Arcadi v Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473; Fenech v Sterling (1983) 79 FLR 244; James v ANZ Banking Group Ltd (1986) 64 ALR 347; Coleman v Gordon M Jenkins & Associates Pty Ltd (1989) ATPR 40-960. The action was commenced on 2 September 1991. It is alleged loss or damage occurred up until the applicants went out of business in October 1990. It appears the section therefore provides no barrier to the applicants' claims although the question will require specific consideration in relation to findings of loss and damage.

NEGLIGENT MISSTATEMENT

For the applicants it is also pleaded that at the time of the making of the representations and warranties (pars19, 25, 28, 29, 31 and 32) the respondent intended the first, second and third applicants to rely on those statements and be induced by them to enter into the Agreements and commence and continue the copying, laminating and photo enlarging business. It is pleaded the respondents therefore had a duty to take care in the making of the representations and warranties.

When a person ("the representor") gives advice or information to another ("the representee") on a serious matter there may be a duty owed by the representor to the representee. The representor must realise or ought to realise he or she is being trusted to give the best information or advice as a basis for action by the representee. It must also be reasonable for the representee to act on that information and advice. The nature of the duty is to take due care to ensure any representations are true and reliable. For liability to be established there must also be a failure to take such due care and damage caused by the falsity of the representation. See Mutual Life & Citizens Assurance Company Limited v Evatt (1970) 122 CLR 628; L Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225
at 250; J W Carter and D J Harland, Contract Law in Australia third ed (1966) 363, par1029. The duty of care arises on the making of the statement. Whether it was made negligently is to be judged on the evidence at the time the statement was made: San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 356-8.

The case for the applicants pleads the duty was breached in three principal respects. The first is the representations and warranties were made without undertaking any or any adequate enquiries as to the capabilities of the machines to fulfil the qualities referred to in those representations and warranties. Secondly, they were made without any reasonable grounds or foundation. Thirdly, there were records and reports of the respondents' servants, agents and employees indicating that the experience of the performance of the machines were such as not to justify the representations as made. These allegations are particularised in terms of the particulars pleaded in support of the allegations of fraudulent misrepresentation. The initial representations, the further representations and the continuing representations are all relied on.

The applicants rely on San Sebastian to support a submission that proof of reliance is generally viewed as being indicative of a relationship of proximity. It is submitted on their behalf that a duty of care with respect to the making of statements in the course of pre-contractual negotiations survives the making of a written contract.

It is not disputed for the respondents that the applicants stood in a relationship of proximity to them such that a duty of care existed.

However the case for the respondents pleads that after delivery of the first copier, there could have been no reliance by reason of the applicants' knowledge and experience gained from carrying on its business.

Non-fraudulent representations

So far as the non-fraudulent representations are concerned the issues are as follows:

(1)Response time of service technicians (19.4 and 19.29)

It is contended this representation was made without any or any adequate enquiry concerning its accuracy, as proper enquiries would have revealed there was no basis for such a prediction. The applicants maintain the Cubitt Report shows a response time within 2 hours was not achieved and was not capable of being achieved. Examination of the Cubitt Report shows that such a response time was achievable. Ferguson's evidence provides further support for that fact. However, this representation has been found only to have been made as a statement of target and there were reasonable grounds for making it.

(2)Sales, likely profitability (19.5 and 19.24; 19.22 and 19.28)

It is contended these representations were negligent because they were based on the Whitford City demonstration which lasted over only a period of two and a half days. It is submitted this was an inadequate foundation for these claims. It has not been established that in the available reports of the respondents at that time there was any information to which the respondents should have averted. The product was new; experience was limited. These circumstances were known to the applicants. It was also known to the applicants that Canon was marketing machines, not advising on the conduct of a business. In my opinion this representation was not made negligently in the circumstances.

(3)Resale value (19.7 and 19.27)

Here the contention is the first respondent did not have any history of sales nor was there any research on which to base the representation. From evidence referred to in consideration of breach of collateral warranty, it appears Adolphe had no basis provided by Canon on which to make these representations. There was no inquiry or any reasonable grounds for them. In my opinion they were made negligently by Adolphe.

(4)Copy quality (19.10, 19.11 and 19.15)

The submission is the representations were made negligently because of the use of the words "brilliant" and "highest" without reservation, limitation or modification. In my opinion these were not unreasonable representations given the evidence that the CLC was the first colour copier on the market.

(5)Ease of operation (19.16 and 19.17)

It is contended this was made without foundation when adequate enquiries would have revealed it was necessary to make a service call virtually whenever maintenance was required. Further, the machine presented with a continual problem of a "phantom paper jam".

At the time representation 19.16 was made there was not the accumulation of evidence to establish most maintenance tasks required the attendance of a technician, either because they could not be carried out by an operator or because Canon required a technician to attend. The evidence shows that the requirement for the attendance of a technician arose subsequently as a requirement of Canon to ensure the machines were not mishandled during maintenance. In my view this representation was not made negligently when made to the applicants.

As to representation 19.17, there is no question the phantom paper jam became a problem with the machine. However, the question is whether the representation that such a jam could be cleared up right away was made negligently. The evidence relied on to establish this is evidence of the performance of the machine after the date on which the representation was made in the video to the applicants (19 July 1988). Ivey testified such problems occurred "all along" but addressed principally later experience in Sydney and Melbourne. Ferguson testified concerning such problems in January 1989. Pinkerton gave evidence phantom paper jams occurred in machines sold in Western Australia "from the launch of the copier". Manuel gave evidence of the problem reaching a crisis stage in Victoria in August 1989.

Reference to the records of Canon to the date when the representation was made by the respondents does not reveal the problem required the attendance of a technician. The knowledge of respondent folders show the problem was recognized in Canon. As a result an engineering change designed to meet the problem had been carried out in late December 1987. A modification had gone into effect at factory at the end of April 1988. In my opinion the folders do not disclose to 19 July 1988 that the problem of paper jams could only be cleared up by calling a technician rather than it being cleared up right away. In the light of the oral and documentary evidence I do not consider that at the time the representation was made it could be said it was made negligently.

(6)Service in every major centre (28.6(c))

The finding was the representation was in respect of every major "city" not every major "centre". In the terms in which the representation is found there is no room for application of the submission that Blandford knew it not to be so or that enquiries would have revealed it not to be so.

Pars19.23, 19.26, 19,25 and 28.6(d) do not require consideration here as they were found not to have been made out.

Fraudulent representations

So far as the representations alleged to have been made fraudulently are concerned the applicants submit that if made fraudulently, they were made negligently. In my opinion the evidence which establishes there was no basis for honest belief in representations 19.2 (copies between service calls) and 25.1 (copy quality "every time") establishes they were made without adequate foundation and consequently were made negligently.

I therefore conclude the following representations were made negligently:

(a)19.2: copies between service calls

(b) 19.7 and 19.27: resale value

RELIANCE AND CAUSATION

The issues of reliance and causation arise in relation to:

· trade practices: 19.2, 19.7 and 19.27, 19.16 and 19.17, 25.1

· negligent misstatement: 19.2, 19.7 and 19.27, 25.1.

The issue of causation arises in relation to the breach of collateral warranty 19.2.

The law

The understanding of the law on which I rely is as follows.

(1) For the purposes of s82 of the TPA the question is whether acts done by the representee were done in reliance on the misrepresentation. If so, that will constitute a sufficient connection to satisfy the concept of causation for the Act as at common law: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525.

(2) The examination of the existence of the requisite causal connection for the purposes of the TPA will involve "investigation ... of the relationship between the offending conduct of a respondent, the acts or omissions of an applicant which are said to have been taken as a result and which are alleged to have been productive of loss, and the loss which is said to have occurred in consequence": Frith v Gold Coast Mineral Springs Pty Ltd (1983) 65 FLR 213 at 233.

(3) Ultimately the determination of whether a loss making decision was induced by a misrepresentation is a matter of judgment to be answered by reference to common sense and experience to the facts of each particular case: Frith at 233; Wardley at 525; Ricochet v Equity Trustees (1993) 113 ALR 30 at 36; March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at 515. The "but for" test provides preliminary guidance where negligence is in issue but is capable of giving rise to anomalies: March v Stramare at 515-9 and 522-4.

(4) Neither in an action pursuant to s82 of the TPA nor at common law is it necessary for the applicant to establish the conduct complained of was the only contributing cause to the loss or damage: Welcher v Steain [1961] NSWR 1136; Gould v Vaggelas (1984) 157 CLR 215 at 236; Ballantyne v Raphael (1889) 15 VLR 538. What must be shown is the misrepresentation was the real, essential, substantial, direct or effective cause of the loss or damage: Smolonogov v O'Brien (1982) 67 FLR 311; Milner and Ors v Delita Pty Ltd and Ors (1985) 61 ALR 557 at 572; Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd (1987) 75 ALR 271 at 280-1; Janssen-Cilag Pty Ltd v Pjizer Pty Ltd (1992) 37 FCR 526 at 530. Where it is arguable a party is induced to make a decision by a combination of factors including the misrepresentation it may be actionable assuming it is non-trivial: Ricochet at 36. In that circumstance the relevant question for the tribunal of fact to answer on all the evidence is whether the misrepresentation alone, or with or notwithstanding other things that accompanied it, was a real inducement, or was one of the real inducements to the plaintiff to do whatever caused his loss: Gould v Vaggelas at 250-1.

(5) The onus is on a plaintiff to show representations or one of them were a real or non-trivial inducement to engage in the relevant conduct: Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458.

(6) Knowledge of the true facts of a business may negate a finding of reliance or inducement: Corbridge v Bakery Factory Fun Shop Pty Ltd (1984) ATPR 40-493 at 45,688; Rumpe v Camrol Pty Ltd (1985) ATPR 40-522 and Mister Figgins v Centrepoint (1981) 36 ALR 23 at 60. Knowledge that a business is unlikely to be profitable or of the true position in relation to the misrepresentations are in this category: Gould at 227 and 236.

(7) The requisite causation will not be present where the losses or damage are the product of some independent, extrinsic, supervening or accidental cause, such as the folly, error or misfortune of those responsible for the conduct of the business: at 494. Poor management, increased competition or the loss of key staff are examples of such factors: Netaf at 494-5; Collins Marrickville v Henjo Investments Pty Ltd (1987), 72 ALR 601; ATPR 41-822 at 48,905. It is not therefore enough to show the losses were suffered in the conduct of the business. It must be shown they were reasonably incurred over such period as the business was reasonably continued in operation: Netaf at 507.

The initial representations as an inducement to the first agreement: (Claim par21)

From a consideration of the evidence appearing under this point in Appendix E I find the case for the applicants establishes reliance by Ivey and Ferguson on the relevant representations made by Adolphe and in the video (19.2 (service calls), 19.7 and 19.27 (resale value), 19.16 and 19.17 (ease of operation) in entering into the first agreement for the purchase of the first two machines, entering into the associated Maintenance Guarantee Agreements and commencing the business of colour photocopying by Imageland using two machines in Western Australia. In my opinion these representations were all real and material inducements to the applicants in so acting.

The initial and the further representations as inducements to the second and variation agreements: (Claim par27)

The applicants claim to have relied on the representations and warranties pleaded in pars19 and 25 of their claim (and hence in accordance with the findings on 19.2, 19.7 and 19.27, 19.16 and 19.17 as well as 25.1) in purchasing a further eight machines, entering into further Maintenance Guarantee Agreements and continuing their business. The purchases were said to be effected by the variation agreement on 26 September 1988. The evidence said to support the reliance is considered in Appendix E under this head.

The so-called variation agreement is pleaded as having being partly oral and partly written. So far as it is said to have been in writing it is said to be constituted by an undated letter from Ivey to Adolphe and the Maintenance Guarantee Agreements, Customer Order Forms and Canon Invoices particulars of which are set out in Table 1.

The undated letter to Adolphe expressed a confirmation of an order for "another eight Canon color [sic] copiers on order number 270096 dated 26 September 1988." Delivery sites were specified. Directions were also given for delivery of machine 242 (under the first agreement) to Armadale.

Order number 270096 was for one CLC machine at $40,940.00. The order was used in respect of 334, 242, 337 and 259. The remainder shown as referable to the variation agreement in Table 1 did not have any order number or had a different order number. Each of those machines was purchased for the same price. Ivey's evidence was the price had been discounted in view of the bulk order.

Ivey also testified the order form would not be regarded by Canon as committing the orderer until a site had been obtained and the machine keyed in. In addition he said in cross-examination the order forms did not mean much with Canon. Thirty forms had been signed up and sometimes two per machine. When he went to the Eastern States Canon cancelled all the order forms which had been signed and had him sign new ones. However, he regarded the signature of order forms on 3 February 1989 as a commitment of Instant Colour to proceed.

If Ivey's letter to Adolphe constituted a contract it was regarded by the parties as varied because Ivey neither acted nor considered he was bound. Purchases were effected pursuant to order forms signed at dates extending to June 1989. It is apparent from Ivey's evidence that if Instant Colour had not wished to proceed up until 3 February 1989 it would have regarded itself as able not to do so. I therefore do not accept the submission for the applicants that whether or not they were contractually bound they regarded themselves as being so bound. It is their attitude of mind in this respect which is relevant to the continuing effect of any reliance.

In my opinion the evidence under this head in Appendix E establishes the applicants materially relied on representations 19.2, 19.7 and 19.27, 19.16 and 19.17 and 25.1 in entering into the agreement concluded on 26 September 1988. Their state of knowledge at that time was not such as to preclude the finding of reliance.

The initial, the further and the continuing representations as inducements to the further purchases and leases and the continuance of the business: (Claim par42)

The applicants' case pleads they were induced by and placed reliance on the (proven) representations and warranties in pars19, 25, 28, 29, 31, and 32 of the statement of claim in doing the following:

(1) not returning the machines already acquired;

(2) entering into the purchase agreements for machines 406 and 414 on 22 March 1989 (it having previously been agreed to lease these machines around 24 February 1989);

(3) entering into a lease agreement for machine 381 on 15 April 1989;

(4) entering into a lease agreement for machine 443 on 28 April 1989;

(5) entering into a lease agreement for machines 507, 512 and 627 on 19 June 1989.

The applicants case is the continuing representations had the effect of picking up and continuing the initial and further representations in relation to the those later actions.

From the findings made on the application of the causes of action to each of the representations, none of the continuing representations have been found to transgress any causes. The case for the applicants therefore comes down to whether the initial or further representations had any continuing effect by being relied on after 26 September 1988 in relation to each of the above pleaded acts and were productive of loss.

In case it be the position the continuing representations are actionable, it is appropriate they also be tested in relation to reliance and causation. The continuing representations other than in relation to the drum were either ones on which reliance could not have reasonably been placed by the applicants or which, if relied on, could not have been productive of loss. The representation concerning training new technicians (28.2 and 28.5), made in October, was known for what it was worth to the applicants well before March 1989. The representation regarding damp paper (28.4), also made in October, had long been known to the applicants not to be the explanation of their problems. The representation in relation to service in every major centre (28.6(c)), another October representation, was found to be a representation relating to every major city and there was no evidence that was untrue. The representation concerning Canon's commitment to the machines and the first applicant (28.6(e)) was known to the applicants for what it was worth. These representations were incapable of being a real inducement to the applicants in their continuing conduct irrespective of the findings they were not made out in relation to the causes of action.

That leaves the pleadings concerning the new drum. The findings previously made on these were as follows:

28.5: "At the October meeting Stokes represented new parts were being developed which would improve the durability and performance of the copier."

28.6(b): "At the Burswood meeting on 27 October 1988 Blandford represented to Ivey and Ted Ivey that a new, improved photosensitive drum had been developed in Japan and would be available in Australia in May 1989 and would be the answer to the problem of colour quality."

29: "On or around 24 January 1989 Instant Colour received and read a letter from Canon under the signature of Richardson in which it was represented and warranted the new, improved photosensitive drum "was developed specifically to improve durability and therefore improve the overall performance and reliability of `the copiers'"

32: "On or around 7 March 1989 Heddle represented to Instant Colour that Canon had successfully tested a new, improved photo-sensitive drum in its Canon Colour Copy Shop in Sydney and it had done 2,000 copies without breaking down."

It will be recalled that the pleaded representations concerning the Sydney meeting (30, 31.2 and 31.5) were found not to have been made out.

It therefore becomes a question whether the representations established concerning the drum were relied on by the applicants whether they constituted a real inducement to the conduct of the applicants in entering into the above‑pleaded purchase and lease agreements. If so, there remains the question whether that conduct was itself causative of loss and damage.

The evidence for the applicants which is relied on to establish this reliance is the evidence arising after 26 September 1988. It is considered in Appendix E under this head.

To this the respondents plead Instant Colour took these (admitted) steps with actual knowledge of the true position and in reliance on a belief that colour copying was then a niche market. Further these steps are said to have been taken as a result of the knowledge and experience gained by it from carrying on business by use of all the machines subsequent to 1 August 1988. That is, the applicants embarked on expansion for reasons other than reliance on the representations.

The defence of the respondents pleads if the applicants suffered loss or damage it was not caused by the respondents. Additionally it is pleaded any such loss or damage was not the natural probable or reasonably foreseeable consequence of the contravention, misstatement or breach or was not reasonably within the contemplation of the parties. Further it is pleaded it was contributed to by the negligence of the applicants or was the result of the failure by each applicant to take reasonable steps to mitigate loss or damage: Frith v Gold Coast at 233.

I accept the submission for the respondents that, apart from the documentary evidence, very little evidence was led on behalf of the applicants concerning the role played by the representations in the various decisions claimed to have resulted in Instant Colour incurring losses. Relevantly these decisions were those leading to the expansion into the Eastern States. The case for the applicants did not with particularity identify the decisions made in the course of the expansion program or how any of the
relevant representations were relied on or causative in each of the decisions constituting the expansion. If the relevant decision was the general decision to expand Eastwards, it is not contended Canon was in the position of a business adviser to the applicants.

When asked why the decision had been made to expand to the Eastern States despite defects in the machine and frequent breakdowns, Ivey testified he had been to the Eastern States with Kodak and seen shopping centres with customer walk-through of 250,000 people a week. In Western Australia the business had been conducted in centres where through traffic was as low as 29,000 a week. This led to a belief on his part that sales would double or better in the Eastern States locations without regard to the performance of the copier.

Examination of the evidence of the applicants shows none of them expected a new drum to fix "all their problems" (and representation 28.6(b) has not been made out in those terms): see Appendix E. By February 1989 they knew the position. The evidence establishes the new drum did improve the durability and performance of the copier.

There is also evidence which supports the conclusion the applicants made the relevant decisions independently of the representations in the belief, based on their experience, the machines could be operated profitably notwithstanding the copiers' service requirements . The evidence is considered in Appendix E.

Additionally, there is evidence the copiers could be operated profitably notwithstanding their servicing requirements. That evidence is also considered in Appendix E.

There is further evidence the level of breakdowns experienced by the applicants improved. For example, during the period from December 1988 to February 1989, the 5 copiers then being operated
by Instant Colour produced 20,107 copies and 40 service calls were made, at an average of 503 copies between calls. This compares with the average for all calls achieved by Instant Colour during the periods between 19 December 1988 and 25 May 1990 of 882 copies between service calls. I accept this demonstrates that during the period subsequent to February 1989, much higher numbers of copies between service calls were achieved by the applicants than were being achieved prior to the introduction of the new drum.

It is also the case that the conduct of the applicants from August 1988 and subsequently is inconsistent with any significant difference between any assumption as to the true position having been made by Instant Colour based on any of the representations and what was in fact the true position. The relevant evidence is also considered in Appendix E.

So far as the continuity of the applicant's business is concerned, the evidence is it was profitable at least to the end of May 1989. In a letter written on 5 January 1989 Ivey included projections showing profitability "based on actual figures". A cash flow projection prepared by Instant Colour around February 1989 contained a projection based on present trading figures of a net profit of $114,600 per copier. Ivey and Ferguson testified the business performed very well during the first six months of 1989.

In all these circumstances I do not consider it has been established that the applicants' conduct in entering the pleaded purchase and lease agreements was materially induced by the initial or the further representations either directly or through the effect of the continuing representations. The effect of the initial and further representations was spent. I consider the continuing representations concerning the drum were a material inducing factor to the applicants entering those purchase and lease agreements. However, in my view the applicants have not established those continuing representations were actionable or causative of loss.

On the subject of causation, contributory negligence and absence of reasonable steps, the case for the respondents particularises the pleadings by reference to the purchase of the machines with actual knowledge (addressed above), the inadequacy of capital and market research, the relative level of expenses and earnings from each machine, the employment of improperly qualified or trained staff, the failure to properly to train or supervise staff, the use of poorly suited locations, failure properly to advertise or market the business, failure to exercise any or any adequate financial control over the business, movement of copiers without proper care and attention, failure properly to operate or locate copiers, failure to sell of machines and/or sites in a timely manner after it was known in mid-1989 that Instant Colour was overcommitted and allowing two companies to operate copiers owned by Instant Colour from premises for which it met cost, rent and other overheads. These pleadings have not been pursued for the respondents.

I therefore conclude the applicants have not succeeded in establishing the representations made in transgression of the TPA, the negligent misrepresentations or the breach of collateral warranty 19.2 were causative of their losses.

MERCHANTABILITY

It is pleaded for the applicants the terms of the first, second and variation agreements, the purchase agreements for machines 406 and 414 and each of the lease agreements ("the Agreements") provided the machines were of merchantable quality and reasonably fit for the purpose of use in the business of copying, laminating and photo enlarging. This is a claim which is not dependent on the making of the alleged representations.

A product is merchantable if it is reasonably fit for the purpose for which it was designed: Willis v David Jones Ltd [1934] SR(NSW) 303 at 313. If a particular purpose is made known to the vendor so as to show the purchaser relies on the vendor's skill and judgment, the relevant provisions of the Sale of Goods Act 1895 (WA) and the TPA require goods to be reasonably fit for that
purpose, regardless of whether it is a purpose for which the good was actually designed: Ashington Piggeries v Christopher Hill Ltd [1972] AC 441.

The terms are particularised as partly oral and partly implied. Implication is particularised as arising from the character of Canon as a well-known trading corporation with a good reputation as supplier of copying equipment and the undisputed fact the applicants made known to the respondents they wished to purchase the copiers for use in a business of copying. The oral terms are particularised as arising from conversations between Blandford and Ivey, Ferguson and Ted Ivey as relied on in support of the representations considered in 28.6(c) and (e). These have been found to have been made.

The claim then pleads that in breach of those terms the machines were not of merchantable quality and were not reasonably fit for their purpose. It is alleged the machine was inherently faulty. The applicants allege the serious and major problems suffered with the copier were:

(a)CLC machines requiring on average an unscheduled service call approximately every 844 copies as at January 1989.

(b)Drum banding on all copiers as at January 1989.

(c)Paper creasing on copiers as at January 1989.

(d)Channel differences as at January 1989.

(e)Short life of drums.

(f)Short life of upper rollers.

(g)Changing colours in successive copies.

(h)Uneven colour.

(i)Short life of lower rollers.

(j)Failure of drum stop memory.

(k)Failure of the ROM chips.

(l)Oil spotting on copies.

(m)Cleaner blades damaging the drums.

(n)Contaminated primary coronas.

(o)Leaking developer seals.

(p)Fading on copies.

In their defence to this pleading the respondents make a general denial. Further, they rely on a pleading that there was a standard term of each of the contracts for the acquisition of machines that any liability for consequential loss or damage caused by or arising out of use of the copier or in respect of it was excluded. It is also submitted there was a provision that any warranty, condition or obligation imposed on the respondents by implication was limited to (i) the replacement of the copier or the supply of equivalent goods; (ii) the payment of the cost of replacing the copier or acquiring equivalent goods; (iii) the repair of the copier; or (iv) the payment of the cost of having the copier repaired.

The case for the respondents as argued at the conclusion of the hearing is that the contentions concerning are to be answered in substance. For the respondents it is submitted when regard is had to the relevant propositions of law relating to as stated above, the issue of whether a CLC copier is merchantable (that is, fit for use in a colour copy shop business) is whether it is able to produce sufficient saleable copies between services to support any business which relied on income generated predominantly from copies produced by the machines. Their case then turns to the evidence relevant to answering that test.

There is evidence the copiers were able to produce high copy volumes. In the case of machines 224, 203 and 242 those volumes (subject to allowance for wastage) ranged from 4020 to 10,770 copies per month on average in the period from 29 September 1988 to 3 February 1989.

The applicants' copiers could not be said to be unable to produce sufficient copies between services to support any business which relied on income generated predominantly from copies produced by the CLC machines.

In cross-examination Ivey testified the business was successful in March, April and May 1989. Roselands and Northlands were
"making a killing" and Parramatta was doing very well also.

Ferguson testified in chief that as at 26 September 1988 there was virtually unlimited customer support.

In an Imageland document prepared between 1 and 26 September 1988, the applicants projected sales of 5,715 copies per month and at that time knew the machines were being serviced far more frequently than once every 5,000 to 10,000 copies.

Imageland's profit projections during the period to 21 September 1988 were based on actual performance and were made independently of any of the representations as to price per copy or copies sold per month. Its expansion plans described on 5 January 1989 include projections showing profitability "based on actual figures". The cash flow projection prepared by Instant Colour around February 1989 contained a projection based on then present trading figures of a net profit of $114,600 per copier. In brochures in September 1988, March 1989, May 1989 and September 1989 it was stated by the applicants the copier had enormous retail potential.

On 15 May 1989 an Imageland document said the company was ready to reap the rewards of an expansion program which would see its income from copiers exceed $200,000 for that month. On the same date a memorandum recorded that Northlands continued to impress with exceptionally high figures.

In September 1989 the applicants applied for a permanent lease at Corio village and in the application projected income of $200,000 per annum and identified the performance of the CLC copier as the "point of difference" for its business. At the same time, in a letter from Manuel to the Manager of Corio Village accepted as having been written in September 1989 it was stated Canon were releasing the CLC500 and "the quality of this machine is far superior (to) that (of) the CLC.." and Instant Colour would be changing over to it "some time in the near future".

In October 1989 the applicants stated in an application for a short term loan:

"We propose now to sell 5 shops to bring us back to 7 or 8 shops total, and also to give the company a very strong capital base....(we) have a firm offer for a half share of our shop at Roselands which we are considering, even though it is our best site, as we believe an owner operator will only improve profits....included (is) a cash flow to show...profitability increases sharply with the opening of Chadstone city and Altona Gate. Also the run up to Christmas will be exiting as our market is very gift orientated. Mothers day week our sales increased $20,000 for the week, and similarly $12,000 for the fathers day week."

Draft advertisements for the sale of businesses in October 1989 stated they had "excellent cashflow", were part of a nationwide chain and "would make an ideal family business".

On 18 November 1989 Ivey demonstrated his confidence in the ongoing viability of colour copy shops using Canon copiers by proposing a joint venture with Canon whereby Instant Colour would supply all Canon colour copy shops with their "add on" requirements such as laminating, frames, jigsaw presses etc and with marketing information and ideas. Although his evidence was that he did this on behalf of another and that the arrangement was concluded with that party, it is not a step he would have taken had he lacked faith in the product.

Ferguson produced profit and loss statements for the periods from 12 August 1989 to 6 January 1990 and 17 June 1988 to 13 January 1990 for dissemination among potential purchasers to show the profitability of a business using CLC copiers.

From the consideration of this evidence I find the applicants' pleading on merchantability is not made out.

That position also follows from the evidence relied on for the respondents in Appendix E. From the conclusions there reached it appears the applicants' business using the machines was profitable until May 1989. There was an improvement in machine performance and servicing in 1989.

The present was not a case where the machine was not suited for its purpose: cf Four Square Stores (Qld) Ltd v ABE Copiers Pty Ltd (1981) ATPR 40,232. This was a case where the subsequently acquired knowledge of the buyer did not preclude the development of a market in the product: Australian Knitting Mills Limited v Grant (1933) 50 CLR 387 at 418 approved in Grant v Australian Knitting Mills Limited (1935) 54 CLR 49; [1936] AC 85.

EXEMPLARY DAMAGES

For the applicants it is submitted an award of exemplary damages should be made in their favour in the region of $1M. Par54 of their claim alleges contumelious disregard of their rights in a number of ways. The pleading, consistently with the earlier findings concerning the representations, falls for consideration in relation to representations 19.2 (copies between service calls) and 25.1 (copy quality every time).

The matters pleaded at commencement of trial assert the reports and records in the possession of Canon made it knowledgable of the defects in the machine. It is pleaded it should not therefore have made the representations and warranties. Further it ought reasonably to have withdrawn the CLC from the market place. It is also pleaded that the release of the CLC200 and CLC500 in 1989 as superior versions of the CLC and Canon's knowledge these versions were becoming available for release on the market are matters supporting the award of exemplary damages.

Exemplary damages are not available in a claim for damages under the TPA: Munchies Management Pty Ltd & Anor v Belperio & Anor (1988) 11 ATPR 50,026 at 50,038 cited in No 1 Raberem Pty Ltd and Ors v Monroe Schneider Associates (Inc) and Anor (von Doussa J, 8 February 1991, unreported). However, this Court is empowered in its accrued jurisdiction to award exemplary damages where that relief would be available at common law: Musca & Ors v Astle Corporation Pty Ltd and Anor (1988) 80 ALR 251 at 262 also cited in No 1 Raberem.

The representations which have been found to be fraudulent are (19.2 and 25.1) and they are respectively part of the initial and further representations.

The case for the applicants supports the submission for exemplary damages by reference to Johns-Manville Sales Corp v Janssens 463 So 2d 242 (Fla Dist Ct App 1984) and Ford Motor Company v Nowak 638 SW 2d 582 (Tex Div App 1982). It is submitted those cases demonstrate that in the United States an award of exemplary damages can be made where a product is released on the market and the risk involved in using that product is misrepresented. The American decisions involved a failure to make adequate disclosure or warning of the risk a product was likely to cause injury or death to a person.

No such risk was in issue here. It is contended the risk in using the copiers arises from whether the representations concerning service and copy quality were true. I have found the applicants continued to acquire copiers with actual knowledge of the risk presented by the level of servicing and thus with adequate notice of such risk. There is no evidence Canon knew or ought to have known the level of servicing required by the copiers was likely to result in the applicants being unable to trade profitably.

I have held the applicants have not established they relied on the representations found to be made without a basis for honest belief but did not do so to their detriment. Additionally I have held the applicants have not made out their case the machines were not merchantable. Furthermore in arriving at the conclusion the applicants did not have a basis for an honest belief in those representations there has been no finding the respondents acted with calculated disregard for the rights of the applicants: cf No 1 Raberem.

In my opinion, despite the findings made of the false character of representations 19.2 and 25.1, there is no proper basis established for punishing the respondents by an award of exemplary damages.

CONCLUSION

For these reasons I consider the applicants claim should be dismissed.

ADOLPHE, Bruno	CANON: Apr 1987-Nov 1989: WA Sales Representative	Applicant
BATEMAN, Reginald	Author report on shopping centres (Exhibit 43).	Applicant
BLANDFORD, Shane	CANON 1976-1978: Technician 1978-1982: Supervisor, Melbourne 1982-1983: Sales May 1985: District Sales Manager Jan 1988: Assistant National Marketing Manager 1988: National Sales Manager for Canon's Photocopier Division Manager Oct 1992: South Australia Branch Manager	Respondent
BLUNDELL, Beverley	Proprietor colour copier business using CLC1	Respondent
BUDDEN, Maureen (nee Van Cleef)	INSTANT COLOUR Aug 1988: Machine Operator	Applicant
BRADLEY, Tony	CANON: 198x: Victoria Sales Manager	Respondent
CHANNING, Stephen	CANON Sales Agent for CLC1	Respondent
COST, Fiona	INSTANT COLOUR Machine Operator. Later Supervisor in NSW (Miranda and Liverpool sites)	Applicant

DAVEY, Timothy Charles	Accountant: Author of 2 reports tendered by Applicants (Exhibit 54)	Applicant
DOBSON, Brian Lloyd	CANON 1981: Field Service Engineer 1986: Technical Support Dec 1987: National Technical Support Engineer 1989-Sept 95: National Technical Support Coordinator	Respondent
FERGUSON, Matthew	3rd Applicant	Applicant
FUREY, Gary	CANON May 1985: Returned to Australia; Service Technician, Sydney June 1987: District Service Manager Oct 1988: New South Wales Service Manager	Respondent
GERMANOS, MR	CANON 14 years in Technical Service and Support 1987: Special Products Engineer	Respondent
GILL, John William	CANON 1976: Salesman Late 1976-78: District Sales Manager 1978-80: Sales Manager Victoria 1981-2: Victoria State Manager for Copying Division 1983: Southern Regional Sales and Marketing Manager (Vic, Tas, WA & SA) 1986-89: Victoria Sales Manager	Applicant
GUY, Malcolm Ernest	CANON: 1984-1988: WA Salesman June 1988: Left Canon	Applicant

HEDDLE, Ian	CANON: Feb 1978: Trainee Accountant Nov 1980: Trainee Salesman July 1984: District Sales Manager June 1989: NSW Sales Manager July 1992: National Ales Manager for black and white copiers	Respondent
HINTON, David	Accountant with Ernst & Young	Applicant
HOLMAN, William Frederick	Nov 1987: Director of Spectrascan Pty Ltd. 6 May 1988: Purchased a CLC100.	Applicant
HOUGHTON, James	CANON June 1984: National Credit Manager Dec 1994: Assistant General Manager - Credit Division	Respondent
HUGHES, Eric	Applicant in Whitby
HUMPHREYS, Alastair	INSTANT COLOUR 2nd in charge in NSW. Dismissed by Mr B Ivey.
IVEY, Brian William	2nd Applicant	Applicant
IVEY, Kaye	INSTANT COLOUR Jul-Aug 1988: Operator and trainer in WA (11 months) Wife of 2nd applicant	Applicant
IVEY, Ted (Edwin)	5th applicant	Applicant
JACKSON, Cheryl	INSTANT COLOUR 1989-90: Operator - Roselands site then Manager Miranda site Party to agreement to purchase site for $50,000 - did not occur.

KENNY, Michael John ("Mick")	CANON: Jan 1978: Technician, Canberra May 1981: Service Technician, Perth July 1984: Dealer/Manager for Copiers - Sales Division July 1987: Acting WA Sales Manager for Copier Products Feb 1988: WA State Sales Manager for Copier Products	Respondent
KENT-HUGHES, Jim	Involved in Whitby
LAGOS, George	CANON: Sept 1988: Finance Manager Dec 1994: Assistant General Manager	Respondent
LAKE, Anne	Proprietor of colour copier shop using CLC1	Respondent
LINDSAY, Leone	Director of Fortal with husband (Mr S Lindsay). Had discussions with Brian Ivey about the purchase of Liverpool and Miranda sites.	Respondent
LUPI, Michelle	INSTANT COLOUR: Assistant manager to B.Ivey in NSW after Humphrey's dismissed. Purchased Roselands store Took over Liverpool lease (NSW) from Instant Colour for $10,000.	Respondent
LYNCH, Frederick	Proprietor of a business using a CLC200 in NSW.	Applicant
MANUEL, Greg	INSTANT COLOUR: Mar 1989-Jan 1990: Victoria State Manager	Applicant
MILLER, Glenda	Second applicant's sister	Applicant
MINCHERTON, Ric	6th Applicant	Applicant
NIESCHE, David	CANON: 1987: WA Administration Manager 1988: State Manager for Canon
PINKERTON, David William	CANON: Aug 1986-Sept 1989: WA Service Manager September 1989: Left Canon	Applicant

PICKUP, Harvey	Accountant	Respondent
PINNER, Frank	Potential investor in Imageland Unit Trust
PLEUSS, Werner	CANON: Feb 1983-Mar 1987: Sales Agent for photocopiers Sept 1987: WA District Sales Manager Feb 1991: Assistant National Marketing Manager - Sydney	Respondent
QUARTERMAINE, Neville	4th Applicant 9% unit holder Instant Colour	Applicant
RICHARDSON, Leslie	CANON: 1977-1980: Technician 1980-1983: NSW Service Manager 1988-1991: National Service Manager July 1991: Assistant General Manager Business Machine Service 1995: General Manager Business Machine Service	Respondent
SHADBOLT, Lynden	Purchased machines 337 & 242. Rented them to Instant Colour	Applicant
SHADBOLT, Kim	INSTANT COLOUR Employee - Parramatta site.	Applicant
SOMA, Ikuo	Senior General Manger of the Office Imaging Products Quality Assurance Centre (Canon Inc) - Expand as Ex CB	Respondent
STOKES, Greg	CANON: Oct 1980: Field Technician Mar 1986: Technical Support Officer, including responsibility for training technicians Mar 1989: Technical Support Manager, including responsibility for training technicians Feb 1990: Field Operations Manager Sept 1992: State Service Manager	Respondent

TANAKA, MR	CANON: General Manager Copier Division	Respondent
TAKAHASHI, MR	National Planning Manager
TICK, Carmel	CANON 1988: Customer Field Instructor on CLC 1	Respondent
TRIPP, Steven Gordon	Service Technician with Sheather and Merrigan Pty Ltd who serviced Lynch machines	Respondent
WHITE, Richard Graham	Employee of AMP Shopping Centres Pty Ltd as project Leasing Manager and Centre Manager, Corio Village	Respondent
WRIGHTFOOT PTY LTD/ WRIGHT, Sue	Bought a Canon machine for operation in Victoria - assigned lease to Instant Colour.

APPENDIX B

EVIDENCE RELATING TO THE MAKING OF REPRESENTATIONS

The representations pleaded fall into three categories: the initial representations, the further representations and the continuing representations.

(A) The initial representations

Representations concerning servicing

(1) Copies between service calls (19.2)

It is pleaded that on or about 12 July 1988 Canon by its servants and agents represented to Ivey and Ferguson that the CLC machines would each produce between 5,000 to 10,000 copies before they would need a service; and a major service on each would be required at 20,000 copies.

Ivey testified at a demonstration on 12 July 1988 at Whitfords ("the Whitfords demonstration") Adolphe told Ferguson and him the CLC machine would only need a minor service between 5,000 and 10,000 copies and a major service at 20,000 copies. He had also written words to that effect on the back of the "Intelligent Colour" manual. He had told Ted Ivey of Adolphe's representations on this. He had assumed the CLC machines would breakdown about as often as black and white copiers and he had been told by Adolphe black and white copiers did only one scan per copy and the colour copiers did four scans per copy. In cross-examination Ivey said he knew as at 26 September 1988 that the machines were being serviced far more frequently than once every 5,000 to 10,000 copies but "I believed what Canon was telling me, and they were telling me that this machine - they would train more technicians to look after the machine and they would fix our problems, and I honestly believed them".

The evidence of Ivey is inconsistent with a paragraph sworn by him in an affidavit on 18 October 1991 in which he deposed Adolphe had told him "you will get 5,000 copies before you will need a service call". Ivey could not explain the discrepancy. The affidavit was sworn to support opposition to an application for security for costs made by the respondents.

Ferguson testified Adolphe had told Ivey and him that the CLC machine required a minor service at 5,000 and a major service at 20,000. Adolphe had said the CLC machine needed servicing about every 5,000 copies because they did the three extra scans in comparison to a black and white copier. Although his recollection was that he was told a minor service was required at 5,000 copies between services he could not rule out the possibility Adolphe had stated 5,000 to 10,000 copies. His recollection was inconsistent with an affidavit sworn by him on 21 December 1991 and the assertion of the representation in the statement of claim.

Ted Ivey gave evidence Ivey told him on 28 August 1988 the CLC machine would do between 5,000 to 10,000 copies between minor services and 20,000 copies before a major service.

Adolphe's evidence was that at the first meeting between himself, Ivey and Ferguson on or around 12 July 1988 he had said to them the machine would require a minor service sometime during 5,000‑10,000 copies and a major service every 20,000 copies. He had written statements to them on the back of the manual. He further testified Pleuss gave verbal information at a sales meeting at Canon's Osborne Park boardroom that the CLC machine could perform between 5,000 to 10,000 copies between services. He said information to the same effect was given in writing by Pleuss on a computer printout on an A4 sheet of paper on which the various functions and features of the machine were printed to assist the sales staff in selling the machines. The document was not produced. He was, however, aware that at the Whitfords demonstration there was a need for the copier to be serviced on
two or three occasions. The number of copies produced between these services varied from time to time. He also ascertained on a week to week basis the performance of each of the machines which he sold.

Guy's evidence was the salesmen were told in the course of sales meetings that the copier would go for between 5,000 to 10,000 copies for minor services and a major service was required every 20,000 copies. He testified he was given the information by Pleuss, Kenny and Stokes, the former two having made those claims both before and after the launch and the claims were current in June 1988. Whenever the topic of servicing was brought up at Monday morning meetings this information was given.

Holman was told by Channing he could expect somewhere between 5,000 and 10,000 copies without touching the machine and at 20,000 there was a major service which would be included in the copy price.

Turning to the witnesses for the respondent, Blandford testified the notion of 5,000 to 10,000 copies between services was never put to salespersons when he was the National Sales Manager. He said the machine was set to work around 3,000-5,000 copies per month, with three or four service calls per month for that volume. His evidence was information to that effect had been given to him either in the service plan or orally by a service representative.

Pleuss did not consider the evidence of Blandford concerning 3,000-5,000 copies with three or four service calls per month sounded familiar. Service intervals had first become the subject of discussion at sales meetings in the middle of 1988 and he could not recall having any discussion on the subject with sales staff in the first half of 1988. He denied distributing a print out for the machine showing it would achieve 5,000 to 10,000 copies between calls or that he or anybody in his presence said the machine could achieve 5,000-10,000 copies between calls. His
recollection was the service interval information was to the effect that such calls would be between 1,000-1,500 copies and such information had come in written form from the Sydney service department. Information on such intervals was not an issue until around mid 1988 when complaints from customers caused the matter to be raised at sales meetings. The complaints were mainly directed to the duration of the machine breaking down.

Kenny testified he did not give information to the sales department that the machine could produce between 5,000-10,000 copies before needing a service and such information had not been mentioned in his presence. He was not aware of Pleuss distributing the computer print out previously referred to. The information which had been available to him was that contained in the service plan which stated a service interval of 1,250 copies.

Stokes considered it to be totally unbelievable the representation had been made because 5,000 copies from a colour machine would be the equivalent of 20,000 copies from a black and white machine. He denied telling Guy the machine would perform 5,000-10,000 copies between services although he considered he may have discussed 5,000-10,000 copies in the context of intervals between periodic maintenance calls. Although his evidence was that reference to this could be found in Canon's files, no document to that effect was put to him in re‑examination. If he had stated a target between breakdown calls to the sales staff it would have been 1,000 copies.

Channing denied he was ever provided with information by Pleuss, Kenny or Stokes to the effect of the representation or that such information was provided in the form of computer print outs. Had he been asked to quote a figure to Holman he would have referred to 1500 copies between service calls. This was not put to Holman.

Both Pleuss and Kenny testified the sales team had access to Canon's computer print outs on the actual frequency of servicing. Pleuss testified he recommended to sales people to check the
records before calling on customers. Pinkerton, Adolphe and Stokes gave unchallenged evidence they had ease of access to information from the service department. Service records support a finding actual copies between service calls were on the average in the order of 1200 copies.

There is documentary evidence in the form of a facsimile to Tanaka from Kent-Hughes dated 10 May 1989 stating during March 1988 the latter had been told at a presentation concerning the CLC machine that it would require servicing only every 5,000 copies and the drum and starter toner would be changed every 20,000 copies.

The respondents raise a number of submissions in the assessment of this evidence. I have already rejected their submission that Ivey and Ferguson should be found to be unreliable witnesses generally and concluded the reliability of their evidence on particular issues is to be found in the context of that evidence. Here that context shows inconsistency between each of their oral evidence and prior affidavit evidence.

There is inconsistency between Adolphe's belief in July 1988 and his knowledge derived from the Whitfords demonstration and enquiries concerning copier performance. I accept the submission for the applicants that no foundation has been laid for the making of any inference that Adolphe's business connection with Ivey affects his credibility.

There is evidence of subsequent conduct by Ivey and Ferguson in September, October and November 1988 involving knowledge on their part that the machines were not performing in terms of the alleged representation and the absence of complaint by them in that circumstance.

I do not consider the knowledge of the sales staff or of the applicants or some of them of actual service requirements after 12 July 1988 necessarily gives rise to an inconsistency with the evidence that a representation was made in the terms alleged. That evidence will require further consideration in relation to causation and reliance but there is no inconsistency between the making of such a representation and the requirement for service calls at more frequent intervals in the early stages of the operation of the machines.

There are inconsistencies between the evidence of Pleuss and Kenny on the point. Pleuss gave evidence of a range between service calls whereas Kenny relied on the Service Plan. The former assumed the written information he had was distributed whereas the latter said the information was passed on orally only. Pleuss also said the claim the respondents' products were two years ahead of competitors was unsubstantiated whereas Kenny gave evidence to the contrary. Such inconsistencies are significant where Pleuss and Kenny worked closely together.

Stokes was evasive and non-responsive.

Channing's evidence is inconsistent with both Pleuss and Kenny. The failure by counsel for the respondents to put Channing's version to Holman suggests that version was not then known to him and so was a matter of recent invention.

The independence of Guy and Holman weighs importantly in favour of acceptance of the applicants' evidence including that of Adolphe. Guy had a good working relationship with Pleuss, his immediate superior, and there is no plausible explanation for him fabricating evidence on this matter. The weight of that evidence is enhanced by the failure to call Tanaka. In my opinion the weight of evidence supports a finding the representation was made as alleged.

(2) Response time of service technicians (19.4 and 19.29)

In par19.4 it is pleaded on or about 12 July 1988 Canon would arrange for a service technician to arrive at wherever the CLC
machines were located, within two hours of a service call having been requested. In par19.29 it is said a representation to the same effect was made between 12 and 19 July 1988 by Adolphe to Ivey and Ferguson.

Ivey testified Adolphe told him the CLC machines would have service priority over black and white copiers and from logging a call they would wait no longer than two hours for a service call. He accepted as a matter of commercial experience and common sense that are all sorts of exigencies that can arise which would prevent a customer's requirements being serviced as fast as the customer would like. He did not consider attendance by a technician half an hour late was any cause for complaint.

Ferguson's evidence was Adolphe said Canon guaranteed to have a service technician on site within 2 hours of every service call being placed. Adolphe's evidence was corroborative of this and of his having communicated those intervals to Ivey and Ferguson in the period 12-19 July 1988. He added in the first meeting with Ivey and Ferguson he stated the machine was the pride of the fleet of Canon and on that basis it had been decided any service call placed on the CLC would receive priority servicing and would be attended to within two hours. Holman's evidence was that Channing promised him a service person would arrive to perform a service in the vicinity of two hours, by which he understood it would be under four hours but on average two hours. Pinkerton testified on most occasions the 2 hour response time was observed.

Of the respondents' witnesses, Pleuss denied telling Adolphe he was allowed to inform customers interested in buying the CLC there would be a two hour response time, saying two hours would have been a fairly average response time and would have been quoted by sales staff to potential customers. He said response time was a strong point for both black and white as well as colour copiers. Kenny denied putting forward information to sales staff for customers that the response time would be a limit
of two hours. His evidence was Canon targeted that response time. Stokes testified the service department in Western Australia was trying to achieve that response time or less. Channing denied having said 2 hours response time to Holman and testified he would have referred to an average time of 3-4 hours.

Channing's evidence on this issue is inconsistent with the evidence of all other witnesses. Holman, as an independent witness did not understand there was any guaranteed attendance within 2 hours but rather 2 hours was a target or average. That is consistent with the evidence of the respondents' witnesses. I find the applicants have not established that the representation concerning a 2 hour response time was warranted; that is, it was not guaranteed. However, I find it was represented to the applicants that Canon would arrange for a service technician to attend within 2 hours of a service call in the sense such period was a target.

(3) Comparison with servicing of black and white copiers (19.25)

It is claimed that between 12-19 July 1988 it was represented to the applicants that "the CLC machines would only require a minimal amount of servicing additional to that required by black and white photocopiers".

It is admitted by the respondents the CLC machines required more than a minimal amount of servicing additional to that required by black and white photocopiers. This admission is supported by evidence of Ferguson. However, there is no evidence of a representation being made in the terms pleaded (placing no weight on Ivey's proof of evidence which alone contains the statement). Kenny could not recall telling salespersons the CLC machines only required a minimal amount of servicing additional to the servicing required by black and white copiers. I find the applicants have not proved the making of this representation.

(4) Duration of service (19.29)

The pleading is it was represented to the applicants "...if a machine required service for any reason, then ... the service would take approximately 30 minutes to one hour...".

Ivey's testimony was Adolphe told him "the minor service" would take 30 minutes to one hour. That was a reference to earlier evidence in which he said Adolphe had told him a minor service would take place between 5,000 and 10,000 copies. Ferguson's evidence was Canon through Adolphe said "that the services would take about 30 minutes to 1 hour".

Adolphe said he indicated to Ivey and Ferguson the technician would be on site for a period of between half an hour to one hour. In cross-examination he added this estimate was made on the basis of minor servicing being required on the machine. Adolphe said he obtained that information from Stokes at a Monday sales meeting, which Stokes denied.

Kenny denied making a statement to salespersons in terms of this pleaded representation.

I accept the submission for the respondents it is inherently unlikely a representation would be made or understood in the terms pleaded as being applicable to service required for any reason. Service records of Canon showed at the relevant time average service times considerably greater than 30 minutes to 1 hour. It is not therefore probable the staff of the respondent, including Pleuss or Kenny would have told Stokes or Stokes would have told Adolphe of a general service time in terms of this alleged representation.

In my opinion the applicants have not established that a general representation in the terms pleaded was made. I find, however, Adolphe made a representation in those terms but limited to the instance of "minor service".

Representations concerning sales and profitability

(1) Sales of 4,000 copies per month (19.5 and 19.24)

It is pleaded that on 12 July 1988 and between 12-19 July 1988 Canon by its servants and agents represented the applicants "could expect" or "would sell" sales of 4,000 copies per month. It is alleged these representations meant that the standard grade and quality of the CLC machine included the capability of selling 4,000 copies, per copier, per month.

From Ivey and Fergusons' evidence in chief and their cross‑examination it is apparent that on 12 July 1988 Ivey asked Adolphe for an estimate of likely sales "based on the Whitford Shopping Centre" experience. Adolphe replied with reference to that experience as a successful occasion involving queues of people wishing to experience use of the machine as a novelty.

However, Ivey understood Adolphe as saying such volume of sales was open to them if they were to put one of the machines in a shopping centre which virtually repeated the conditions at Whitfords. Adolphe's evidence establishes he intended his representation to be understood in that way with reference to placement in very high volume traffic areas in the major shopping centres in Perth. Adolphe told Ivey and Ferguson based on the Whitfords machine having made 2000 copies over a period of 2½ days and also on conversations with Pleuss, 4,000 copies could certainly be safely achieved in a high profile area such as a shopping centre. In cross-examination he said this was later backed up by Pleuss who put in writing some examples showing profit which would be produced from 4,000 copies per month.

Pleuss in cross-examination testified the machine had the capability to produce 4,000 copies. Such a claim was not false. It was a claim which would have been made. It was a possibility that 4,000 copies a month was a likely target in a shopping centre. The question of whether Pleuss had put in writing some
examples was not put to him in cross-examination and no document was produced concerning that on call. No reliance can therefore be placed on Adolphe's evidence to that effect.

The evidence in regard to the making of this representation during the period 12-19 July only supports a finding that Adolphe stated the applicants could "expect" to sell 4,000 copies per copier per month, not they would do so. The evidence is that of Adolphe and Ivey in cross-examination. In my opinion the representation of expectation pleaded in 19.5 is made out.

No representation was made of guaranteed sale as pleaded in 19.24.

(2) Copy sale prices (19.23)

It is next pleaded that between 12-19 July 1988 it was represented to the applicants laminated copies produced from the CLC machines would sell to members of the public for $12 each for each A3 copy and $8 for each A4 copy.

There is no evidence of a representation in these terms; there is only evidence of Adolphe responding to a question from Ivey whether these prices were achievable in the market place and of Kenny conveying these sale prices to salesmen. The evidence of Ivey and Ferguson supports a finding such prices were in fact achieved by the applicants.

(3) Likely profitability (19.22 and 19.28)

These alleged representations by Adolphe are pleaded as having been made between 12-19 July 1988 and as being that the CLC machines would make a very lucrative business. Additionally, if the applicants put the machines in shopping centre malls they would be the first to do so and "should make a killing".

The evidence of Ivey, Ferguson and Adolphe supports a finding such a representation was made.

Relationship to competitors (19.27)

This representation is said to have been made between 12-19 July 1988 to the effect "Canon is at least two years ahead of our nearest competitor in the colour copying field...".

There is subsequent evidence a representative of Canon expressed this view to a third party in August 1988. However, there is only the evidence of Ivey to support a finding the representation was made by Adolphe on those dates. Pleuss in cross-examination said a claim in terms of this alleged representation would have been unsubstantiated and not a claim he would have allowed his salesmen to make. In any event there is no plea that if the representation was made it was untrue.

Resale value (19.7 and 19.27)

This pleading is that on or about 12 July 1988 it was represented to the applicants the CLC machines would have a resale value of 60% of $51,950 at the end of two years after purchase. There is the further pleading that between 12-19 July, 1988 the applicants were told they would get approximately 60% of its purchase price back if they were to sell the machine inside two years.

Ivey's evidence was Adolphe made the second pleaded representation at the Whitford's demonstration. He also testified Adolphe wrote on the back of the Canon's Internal Sales Manual that the resale value of the copier would be approximately 60% of its purchase price if sold within 2 years.

Ferguson testified Adolphe said this on that occasion.

Adolphe's evidence was around August/September 1988 he told Ivey and Ferguson the machine would have a resale value of 60% of its sale price "within two years". A letter written by Adolphe on 23 August 1988 to a third party stated the resale value would be 60% of the retail price if the copier was sold within two years.
Adolphe testified the letter was authorised by Pleuss. In cross-examination he said Pleuss and Kenny provided him with the information. This was denied by each of them.

Holman gave evidence Channing said at a meeting on 14 April 1988 he would get a trade-in of around $30,000 after two years "given that the price of the machine was about $50,000". Channing denied having said that to Holman.

Blandford's evidence was salesmen were not given material stating the machines might have any particular re-sale value within any given period. In his view the resale value was almost zero and Canon was asking its customers to take their finance over three years with zero percentage residuals because it could not confirm what the resale value would be. He could not recall any figure being worked on in 1988 as a possible trade-in value after two years.

Pleuss testified no information was provided to sales staff or otherwise on possible resale value. He did not think he had spoken to Adolphe about the contents of the letter to the third party. He said there was no trade-in policy with Canon for the CLC1.

Kenny's evidence was no information was made available to the sales team in Western Australia in relation to the resale value nor was there a trade-in policy. He did not consider the letter was sent after confirmation by him.

Adolphe's evidence on this matter does not go the making of the representations on the relevant dates although it is subsequent evidence consistent with Ivey's evidence. Importantly Holman's evidence is evidence of a system or practice which preceded the alleged making of the representations. I consider Holman's evidence makes it more probable than not that Ivey's evidence on this issue is true. It is not inconsistent with the evidence of Pleuss, Kenny and Blandford because it was open to Adolphe (and
Channing) as salesmen to address the issue of the future value of the machine even in the absence of any settled policy of or authority from Canon on that question.

I therefore find these representations were made.

Copy quality (19.8, 19.10-12, 19.14-15, 19.18, 19.21, 19.26 and 25)

These alleged representations have four sources:

(1) Initial discussions (19.8)

The first of these alleged representations is pleaded as having occurred on 12 July, 1988 when Adolphe is said to have told Ivey and Ferguson "the copier could produce good quality copies from negative film". Adolphe's evidence supports this but neither Ivey nor Ferguson's evidence does so. Adolphe's evidence was Pleuss told him when the machine was first released it was capable of doing copies from slides and negatives and the copy quality achieved would be of a very good quality. In chief Adolphe also testified Pleuss had told him the machine was very capable of doing copies from slides and negatives. This was not put to Pleuss. I do not consider the pleading is made out.

(2) Video representations (19.10-12, 19.14-15, 19.18)

Then there are representations admitted as to their words as being in a video supplied by Adolphe to Ivey and Ferguson on or about 13 July, 1988 to the following effect:

"19.10 "...All this Canon technology was integrated to deliver the highest quality colour copies on plain paper, but that's just the beginning...";

19.12 "...For brilliant finished quality copies from any original, even 35mm positive slides and negative films, only Canon could make such impressive technology so
simple. The copies is easily integrated into any office environment since it uses a regular power source of 115 vaults and plugs rights into the wall...";

...

19.15 "...There is no faster, more economical way to get brilliant full colour copies of positive slides and negative film...";

...

I find Adolphe gave Ivey the video during the week of 12 July 1988. Ivey later provided it to Ted Ivey in late August or September 1988. The evidence of Blandford and Pleuss leads to a finding the video was distributed and available to salespersons from April 1988, a fact consistent with the previous finding.

(3) Later discussions (19.21 and 19.26)

Between 12-19 July, 1988 it is pleaded representations were made to the following effect:

"19.21"that good quality colour photocopies produced by Adolphe on a demonstration CLC machine at the First Respondents' premises between the 12th to the 19th July, 1988, would be the quality that "you" would obtain from every copy produced by the CLC machines";

...

19.26 "that the CLC machines would produce a good quality colour photocopies from photographic slides and photographic negatives";".

The only evidence in support of 19.21 is that of Adolphe who testified he told Ivey and Ferguson the quality of copies which were produced during the demonstrations was the sort of quality
they could expect. As this is unsupported by testimony from either of the latter, I do not consider the pleading is made out in relation to 19.21.

In relation to 19.26, Adolphe's evidence was he said the machine had a projector that would allow it to produce good quality colour copies of negatives and slides at the first meeting with Ivey and Ferguson. Again this is unsupported by evidence of Ivey or Ferguson. The pleading is not made out.

(4) Internal Sales Manual (25) - see below

Ease of operation (19.12-13, 19.16, 19.17)

The Video is also the source of a number of statements that

the CLC machine was easy to operate. For the reasons given in relation to the other video representations previously considered, I find these statements to have been made.

(B) The further representations

Copy quality (25.1 and 25.2)

It is pleaded that in the Internal Sales Manual it was stated in respect of copies produced by the copier "the colour quality will be flawlessly crisp and clear every time" and "it is possible to make brilliant full-colour copies from 35mm slides and negatives".

For the respondents it is admitted the words were used in the Manual. It is particularised the Manual was delivered to Ferguson in August/September, 1988 by Adolphe for and on behalf of Canon.

Ivey's evidence in chief was that he was given the manual by Adolphe when they met at the end of August 1988. He read it that night and gave a copy to Ferguson. An article in the Manual under the heading "advantages" had said that copies produced by the machine would be "flawlessly crisp and clear every time", which impressed him. He also recalled the statement concerning brilliant full colour copies being made from 35mm slides and that the machine was easy to operate.

In cross-examination he testified the Manual was given to Ferguson who in turn gave it to him. He had given a copy to Ted Ivey.

Ferguson's evidence was Adolphe had given him maybe a dozen copies of the Manual between 12 and 19 July 1988. In cross-examination he corrected this to have occurred in the period August to September 1988.

There is evidence of Quartermaine and Ted Ivey they read the Manual.

Adolphe's evidence was that they were issued with the Internal Sales Manual. Subsequently to his first meeting with them he provided a copy of it to Ivey and Ferguson.

Blandford testified the Manual was distributed around the States from around March 1988.

Pleuss testified he knew the Manual was something which was being circulated by Canon in August 1988. He gave it to every salesman employed to sell the copier including Adolphe.

I therefore find the Manual was provided by Adolphe to Ferguson in August/September 1988. The evidence does not support a finding the Manual was provided prior to the conclusion of the second agreement. It may be inferred from the evidence and the finding made that it is more probable than not the Manual was delivered prior to the variation agreement.

There is no evidence of anything being said in relation to the contents of the Manual at the time at which it was so provided or subsequently.

Representation 25.3, a plea in the alternative to 19.7 and 19.27 does not require consideration as those two pleas have been made out.

(C) The continuing representations

The October meeting (28)

A number of representations are said to have been made at Canon's Perth office in or about early November 1988 at a meeting between Stokes, Adolphe, Kenny and Pleuss and, for the applicants, Ivey, Ferguson and Ted Ivey.

The evidence of the fact of this meeting is as follows: Ivey testified there had been a meeting in October with Canon, represented by Kenny, Adolphe and Stokes, the latter of whom came in lieu of Pinkerton. In re-examination he testified the meeting was towards the end of October, early November and Niesche had not attended it. Ferguson said the meeting was in October. His evidence was the meeting had been attended by Ivey, Ferguson and Ted Ivey and, from Canon, Kenny, Pleuss, Stokes and Adolphe. Ted Ivey's evidence was Kenny, Adolphe and Stokes attended and it occurred in late October. Adolphe said those at the meeting in addition to Ivey and Ferguson were Ted Ivey, Stokes, Kenny, Pleuss and himself. Stokes recalled a meeting in Canon's boardroom towards the end of 1988 which was attended by Pinkerton, Kenny and possibly Niesche and Pleuss and a salesman together with Ivey and Ferguson. Pleuss testified at the October meeting Kenny and possibly Adolphe and Stokes were present for Canon in addition to himself. I find the meeting was attended by Ivey, Ferguson and Ted Ivey of the applicants and by Kenny, Pleuss, Stokes and Adolphe for Canon and it was held in late October. I shall refer to it as "the October meeting".

Complaints concerning performance and servicing (28.1)

It is pleaded Ivey complained to Adolphe about poor performance and frequent requirements for servicing the copiers. It is particularised in the applicants' answers the complaints were
made from mid-August 1988 to in or about November 1989 and were made by telephone and in person to Adolphe at Canon's Perth office.

In my opinion there is abundant evidence this was the case. The evidence shows by "poor performance" these complaints designated failures of copy quality in particular.

Training new technicians (28.2 and 28.5)

Paragraph 28.2 pleads, in response to Ivey complaining to Adolphe about poor machine performance and frequent servicing requirements, Stokes represented Canon was training new technicians. In the applicants' answers it is further particularised as having been made in a conversation at Canon's Perth office in or about early November 1988 between Stokes, Adolphe, Kenny, Pleuss, Ivey, Ferguson and Ted Ivey and the statement included the assertion such training would fix the problems.

In par28.5 it is pleaded a statement to the same effect was made at a meeting at Canon's offices by Kenny, Adolphe and Stokes. For Canon it is admitted it trained more technicians as more CLC machines were sold into the market place.

I find the meeting in question was the October meeting in the Canon boardroom.

Ivey testified that at the meeting there was discussion of the problems "with the techs arriving late, not within the 2 hours, with the colour quality failure and also the other breakdowns that we were having". He said that was when Canon was training more technicians. Some time before 26 September 1988 Ivey was being told by Canon they were training more technicians to look after the machine and Canon would fix the problems. He believed this. Six weeks into the business he understood Canon were training new technicians.

There is no evidence of Ferguson on this representation being made at the meeting. However, he said he had made complaints concerning copy quality before the meeting to Adolphe and Pleuss and their response was their technicians were young and inexperienced and they were training them all the time.

Ted Ivey's evidence was Stokes said he was going to give colour machines more priority and train more technicians. This was in response to the raising on behalf of the applicants of the problem of delays in getting a technician onto site. Stokes said he was going to train more technicians and colour copiers had priority over black and white copiers. There would consequently be technicians available to respond more quickly.

Adolphe testified Stokes said Canon were in the process of training a lot more technicians on the colour machines and problems would be alleviated in the future. Stokes had stated because there were a number of machines that had now been sold they did not have sufficient technicians to service all the machines and further technicians were being trained to alleviate that problem. However, Canon had the most technicians in the field of any company in Perth and took a lot of kudos on their service.

Stokes gave evidence technicians would be trained as response times to jobs required. His opinion was Canon definitely had enough technicians trained to service the CLC machines. He recalled a complaint from one technician that he wasn't getting enough experience because there were too many technicians in the field. He recalled that at the October meeting one issue which was brought up was the amount of time being spent on repairing machines in the field ("down time"). He had responded by expressing concern in relation to the lack of training of the machine operators which gave rise to the service calls. It was standard procedure to train more technicians as the number of copiers in the field grew. However, he could not recall the meeting.

Kenny, having a vague memory of the meeting, could not recall this topic having been mentioned.

Pleuss said it was a possibility Ferguson had complained to him before the meeting as previously described. He said the response referred to by Ferguson would not have been up to him to say as it was a service issue. It was a possibility someone else at the meeting mentioned training of technicians.

I accept the submission for the respondents that the Pleuss statements referred to in the evidence of Ferguson were not pleaded and cannot be relied on even if, in the face of Pleuss's denial of making them, they could be found to have been made.

The pleaded representation is supported by the evidence of Ted Ivey and Adolphe and is consistent with the evidence of Ivey, Stokes and Pleuss so far as the evidence of the latter two admits the possibility of such a statement having been made. I find the representation was made by Stokes at the meeting. There is no evidence of the statement having been made by Kenny or Adolphe. Nor is there evidence to support a finding the statement was made by way of "warrant": rather it was a factual statement of what Canon was doing.

Constant improvement in copy quality (28.2)

The same paragraph pleads Stokes represented Canon was constantly improving the quality of the machine. The applicants case does not support this pleading.

Upgrading machine with improved parts (28.3)

Then it is pleaded Pleuss represented the machine would be upgraded as soon as improved parts became available. This was said to have been made in a conversation at Canon's Perth office in or about early November 1988 in response to complaints from Ivey. The applicants' answers particularise Pleuss stated the
machine would be upgraded as soon as improved parts became available, which would fix the problems.

While there is ample evidence from the applicants of them having made various complaints concerning the machine, there is no evidence to support a finding Pleuss made that representation. Ivey's evidence was that at a luncheon meeting at Subiaco restaurant in December 1988, following a meeting in Canon's boardroom attended by Ivey, Ferguson, Ted Ivey and by Kenny, Lagos, Blandford, Adolphe and Pleuss, Ivey had complained about machine problems and, in response, Pleuss had said new parts would fix those problems. Pleuss could not recall this or other details of the meeting which he said was a pleasant social occasion rather than a business meeting, although it was possible the matter was raised in discussion. At the time of the alleged meeting he was not aware there were going to be new parts coming from Japan. Pleuss did not think he had been told there was something in the pipeline which was likely to solve the problem at around the time of the Subiaco restaurant meeting. The submissions for the applicants on this issue do not rely on evidence of others said to be at the restaurant meeting. There is no evidence of Ivey, Ferguson, Ted Ivey or Adolphe which supports the making of the representation as pleaded.

In my opinion the applicants' case does not support this pleading or a finding, if open on the pleadings, that the representation was made at the restaurant meeting.

Representation concerning effect of damp paper (28.4)

It is pleaded that in or about October 1988 Ivey complained to Stokes about the poor colour quality and varying quality of reproductions and, in response, Stokes represented these problems were due to damp paper. It is particularised the complaint and the reply were made orally in conversations between Ivey, Ferguson, Adolphe, Stokes and Pleuss between October and November 1988. It is admitted for the respondents damp paper can cause poor colour quality and varying quality of reproductions.

In the applicants' answers to the respondents' further and better particulars the applicants stated this pleading was brought on the basis the relevant conversation was a telephone conversation between Ivey and Stokes in or about October 1988 the substance of which was that Ivey stated the CLC machines were producing poor colour quality and varying quality of reproduction and Stokes replied these problems were due to damp paper. Ivey's only evidence in relation to a telephone conversation was referrable to September 1988. He was not cross-examined on that or on the pleaded version.

Ivey's evidence was that at the October meeting the Canon representatives said the reason for the fading colour was damp and wet paper. In cross-examination he testified Stokes said "your problem is damp or wet paper" and he did not challenge this advice because he did not know anything about the problem of damp paper until Stokes brought it up. He had cupboards built with lamps inside to correct the dampness but it did not make any difference.

This evidence is inconsistent with Ivey's proof of evidence which is to the same effect as the response to further and better particulars.

Ferguson testified a machine which the applicants had at Midland Gate had been located near a door and experienced dampness problems. Ferguson also said Canon had tried to say all the machine problems were caused by damp paper. At the October meeting, Stokes had raised dampness of paper as a possible cause of the problems the applicants were experiencing with the machines. The applicants had been happy to carry out any instruction to avoid future problems concerning damp paper in order to keep the machines going more consistently and reliably.

Adolphe said Stokes had responded to Ivey's complaints concerning quality by initially saying some of the problems the applicants were having were due to paper having moisture in it. He
testified the applicants present at the meeting disputed that because they had built cabinets for paper storage to avoid that problem. Ted Ivey had no recollection on this issue.

Holman gave evidence he had been told by Canon's technicians the reason for the lack of consistency in copies was the paper in his machines was wet. He had made arrangements for a humidicrib for the paper. That had not had any effect in improving product quality.

Stokes could not recall any telephone conversation with Ivey although it was possible it occurred. When customers telephoned with concerns about these matters he would probe the customer to find out an actual description of the problem and that may lead him to ask another question. He could not recall the matter of damp paper being discussed at the October meeting although he recalled having a conversation with someone about building a cabinet to assist in keeping the paper dry. In cross‑examination he said it was unbelievable he would have said damp paper was the problem but he would have discussed damp paper with Ivey because from early on the machines were in uncontrolled environments in shopping centres. However, he could not relate that to the meeting. He denied endeavouring to mislead some of the applicants into thinking their machine problem was due to damp paper when the reality was it was due to inherent problems. Pleuss could not remember any discussion of the damp paper problem but it was a definite possibility it had been discussed. Kenny's memory was vague about the meeting and he could not recall any discussion concerning damp paper.

Stokes was not cross-examined on either Ivey's evidence of the telephone conversation or the respondents' answers. He was cross-examined on the version of events which arose from the above evidence, namely whether the question of damp paper was discussed at the October meeting.

Where there is no departure during a trial from the pleaded cause of action, a disconformity between the evidence and particulars earlier furnished will not disentitle a party to a verdict based on the evidence: Dare v Pulham (1982) 148 CLR 658 at 664. The question is whether the discrepancy between the plaintiff's case as pleaded (in the particulars) and as proved, is great enough to amount to an injustice or an embarrassment to the defendants: Vlasic and Others v Federal Capital Press of Australia Pty Ltd and John Fairfax and Sons Ltd (1976) 9 ACTR 1 at 6. In my opinion these principles govern particulars provided by the applicants' answers on this issue. The evidence as led at trial which was subject to cross-examination lies within the particulars pleaded on the issue. Having been subjected to cross-examination it cannot be said the respondents will suffer any injustice or embarrassment by the applicants' case being brought on the evidence as it emerged at trial.

For the respondents it is contended Ivey's evidence is inconsistent, implausible and exaggerated. It is the case his evidence is inconsistent with his proof of evidence and the pleading. However the evidence of Adolphe supports his version. That version is admitted as a possibility in the evidence of both Stokes and Pleuss. It is consistent with the evidence of a system or practice given by Holman.

The pleading of this representation having been made in a telephone conversation is not made out. I find at the October meeting Stokes said the applicants quality problems were caused by damp paper. There is no evidence on which a finding can be based that Stokes "warranted" that to be the cause of those problems. He only posited that as the likely cause. The fact the applicants built cupboards is as consistent with their desire to eliminate all possible sources of machine mal-performance as it is with Canon having warranted that course would solve all the problems.

Placing service problems under control (28.5)

Here it is pleaded that during the period between October 1988 and November 1988 at a meeting at Canon's offices in Perth Kenny, Adolphe and Stokes represented to Ivey, Ferguson and Ted Ivey "service problems would be placed under control". This is particularised as having been made orally in conversations between those three applicants and Adolphe and Stokes. The applicants' answers further particularise the statements as having been made by Stokes at what I have found to be the October meeting. It is admitted for the respondents that at the meeting Ivey and Ferguson said words to the effect they would like Instant Colour's copiers to be serviced as quickly as possible.

Apart from the impermissible reliance on Ivey's proof of evidence, there is no evidence brought to support the pleading that Stokes made this representation.

The Burswood meeting (28.6)

For the applicants it is pleaded that a meeting was held at the Burswood International Hotel, Perth on or about 24 November 1988 between Ivey, Ferguson and Ted Ivey and, for Canon, Blandford.

Ivey said the meeting took place at breakfast-time on 12 November 1988, Ferguson "in November" and Ted Ivey on 24 November. Blandford said he did have a meeting with the applicants on 24 November but it was at Canon's boardroom. A month earlier he had a breakfast meeting at the Burswood Hotel, on or about 28 October. He had verified this from American Express records. A memorandum from Blandford to Ito dated 9 November speaks of a "further meeting" being arranged with the applicants on 24 November. Kenny testified in reliance on his 1988 diary that the breakfast meeting occurred on 27 October 1988 at 7.45am. This is consistent with Blandford's evidence. The evidence of the applicants in support of this pleading addressed a breakfast meeting rather than the meeting which Blandford said he had attended on 24 November 1988. I find the breakfast meeting occurred on 27 October 1988.

As to the attendance at that meeting, I find that Ivey, Ferguson, Blandford and Kenny were present throughout and that Ted Ivey and Kenny left after breakfast.

Complaints (28.6(a))

It is further pleaded Ivey, Ferguson and Ted Ivey complained at that meeting about the poor quality of copies produced by the machines and about continual break-downs. I do not accept the submission for the respondents that neither Ivey nor Ted Ivey gave evidence to support this pleading. When asked in cross‑examination whether the principal purpose of meeting with Blandford was to discuss a proposed move to the Eastern States, Ivey said there were two issues at the meeting: the machine breaking down and the new modifications Canon were going to fit to it and whether the applicants would get service if they went Australia wide. He said Blandford would be wrong if he said no complaints were made at the meeting about performance, reliability or service problems. Ferguson testified breakdowns were the subject of complaint but did not relate that to the meeting. Ted Ivey's evidence in cross-examination was that complaint was made by Ivey and Ferguson to Blandford that the machines were not performing. However, he said the main thrust of the meeting had been the move to the Eastern States and the meeting had been a very positive one, amiable and friendly.

Blandford testified the relevant applicants at the meeting did not raise anything in a complaining manner. He could not say there was no discussion about the performance of the machine on that day. He did not recall any discussion about continual breakdowns. However, he said it was possible the subject was mentioned. It was highly likely the issue of copy quality was raised but only in relation to customer demand for it and not by way of complaint. Breakdowns had been discussed in the context of the importance to the applicants of service when they occurred. Ferguson had not raised the issue of copy quality with him - on the contrary, the relevant applicants saw the machine and its copy quality as a very exciting business opportunity for them. Copy quality had been raised in the context that if copy quality fell down a service call would be required, as it would be if the machines broke down. Kenny did not give evidence of complaint.

In my view the evidence only supports a finding that at the meeting the issues of copy quality and machine break-downs were raised by the applicants present but only in the context of the availability of service if their business expanded interstate. No finding of "complaints" being made on these issues on that occasion is open.

Service in every major centre (28.6(c))

At the Burswood meeting it is contended for the applicants Blandford represented Canon would give service in every "major centre" of Australia.

Ivey testified Blandford said at the Burswood meeting the applicants would get service Australia-wide, in every "major city". He said the same thing in cross-examination. Ferguson said he asked Blandford about the service Australia‑wide and he told them they could expect the same service Australia-wide as they were getting in Perth. Ted Ivey testified in cross‑examination Blandford had said Canon was an Australian-wide company and they could expect the same sort of service there as in any "major city" in Australia. He affirmed they were going to get the same service in the Eastern States in "major centres" as they were getting in Perth. Blandford did not have a positive recollection of making such a statement on service but he regarded it as highly likely he would have said it in the context of the applicants moving interstate. He considered he would have said "major capital cities" or "capital city" because Canon did not provide service in major regional centres.

In my opinion the weight of the evidence is Blandford represented Canon could give service in every major city of Australia.

Provision of service (28.6(d))

It is also pleaded Blandford represented at the Burswood meeting that if the applicants went Australia‑wide "Canon would make sure that its copiers would be serviced".

Ivey gave no evidence on this. Ferguson testified Blandford said they could expect the service in the rest of Australia which they were getting in Western Australia. Ted Ivey said Blandford assured them he would give them full service over there. Blandford said he could not recall making the statement but it would be true if the applicants went Australia-wide their machines would be serviced by Canon in the major capital cities.

I find the pleaded representation, to the extent it meant anything over and above the representation found in relation to 28.6(c), was not made.

Total commitment to machines and first applicant: (28.6(e))

Then it is pleaded that at the Burswood meeting Blandford represented Canon were totally committed to the machines and to the first applicant and said "...this is Canon you are talking to...".

Ivey testified Blandford told him Canon was totally committed to the copier and the applicant's company and said "this is Canon you're talking to". Ferguson said Blandford assured them he would look after them as a good customer. His evidence was also that when he had commented Canon's service was pretty average at the moment Blandford had looked at him "funny" and made the observation it was Canon he was talking to. Ted Ivey testified Blandford said at the Burswood meeting Canon was totally committed to the copier and the company and made the observation. Blandford could not recall making the observation but said if he did it would have been in the context that Canon is an Australia‑wide organisation and the same level of service is offered in Melbourne, Sydney and Perth.

I find the pleading is made out.

Meeting at Canon's Perth office and at Subiaco (28.7)

Next the pleading asserts that at a meeting around December 1988 at Canon's Perth offices and at Subiaco, Kenny, Lagos and Blandford represented a new drum was developed which would remedy the problems with the copier. It is admitted that in or around December 1988, Ivey, Ferguson and Ted Ivey met with representatives of Canon at Canon's Perth offices and thereafter at Subiaco.

Ivey testified the meeting was in December 1988 and was attended by Kenny, Lagos (whom he had met for the first time), Blandford, Adolphe and possibly Pleuss for Canon and Ferguson and Ted Ivey in addition to himself. After the meeting people went to lunch in Subiaco.

Ferguson said the meeting was in December 1988 and was arranged by Canon to meet Lagos, followed by lunch.

Ted Ivey's evidence was around December 1988 there had been a meeting to which he did not attend but he got the story second‑hand from Ivey and Ferguson. I accept the submission for the applicants this evidence should not deprive them of the benefit of the admission of the fact of the meeting and Ted Ivey's attendance at it in the defence.

Blandford said he had checked his flight details and he was not in Western Australia in December 1988. He could recall a meeting in Canon's Perth office followed by a Subiaco meal but that was in May or June 1989. Kenny and he had been present but he did not have an accurate recall of attendance. He, Kenny and Ivey were at the restaurant.

Lagos' evidence was he had attended a meeting in the Canon's boardroom in December 1988 and recalled Blandford, Adolphe, possibly Kenny, possibly Pinner and Ivey being present. He did not go on to the lunch.

Pleuss' evidence was towards the end of 1988 he had attended a meeting in Canon's boardroom with representatives of Instant Colour. Those present were Kenny and possibly Adolphe and Stokes with Ivey and Ferguson. He thought the restaurant meeting was a month or two after the board meeting. Those present at the restaurant meeting were Blandford, Kenny, Pleuss and Ivey, Ferguson and Ted Ivey.

Kenny recalled a dinner at the Mediterranean Restaurant but not who attended. There was a possibility the people who went to the restaurant had first met in Canon's offices. While he could not clearly recollect who attended the restaurant, he believed Blandford, himself, and delegates of the applicants were present.

In my opinion this evidence supports a finding the admitted meeting which took place in Canon's Perth boardroom in December 1988 was held between Ivey and Ferguson with Kenny, Lagos, Adolphe and possibly others. In view of the unchallenged corroboration of Blandford's evidence by his travel records, I do not accept the evidence he was present. His evidence of the date of the meeting is contrary to the admission and is unsupported by other evidence. I am satisfied the meeting was followed by a restaurant lunch but I am unable to make a finding of who was present at that lunch other than Ivey and Ferguson and some representatives of Canon.

The balance of the pleading relating to the new drum is addressed later.

Leases without a need for a guarantee or security (28.7)

Paragraph 28.7 then pleads Lagos for Canon represented at the same meeting he would arrange leases without the need for a guarantee or security. This is particularised as having followed a statement by Ivey that Instant Colour would not take delivery of any more of the machines for which it had signed Maintenance Guarantee Agreements unless the problems were fixed.

Ivey testified in chief Lagos approached him in February 1989 to request the first applicant's directors to sign personal guarantees "which he previously said we didn't need". The pleaded allegation was put to him in cross-examination and he affirmed it. He also affirmed the representation was made by Lagos at a meeting in December. He denied the pleading was not true. He said he met Lagos for the first time in December 1988 and Lagos had said Canon had started their own finance company for the first time and they would require no guarantees.

Neither Ferguson nor Ted Ivey gave evidence to support this pleading.

Lagos denied making such a statement either at the meeting or at all. He did not think there had been any talk about guarantees because it was a very introductory discussion on the finance Canon Finance could arrange. Blandford said he was not at a December meeting but had met Lagos at a meeting on 24 November but it was impossible for Lagos to have then said no guarantees or security was required because that was one of the most critical factors.

In my opinion the applicants' case does not establish this aspect of this pleading.

The Sydney meeting (30 and 31)

The pleadings then allege on or around 15 and 16 February 1989, Lagos, Blandford and Heddle met with Ivey and Quartermaine on behalf of Instant Colour and Pinner to discuss problems being experienced by Instant Colour with the CLC machines. It is said Ivey informed the respondents Instant Colour was experiencing serious problems in colour quality and reliability with all its copiers. Instant Colour threatened to return the machines. The pleading is admitted only to the extent Ivey met with Heddle on 16 February.

Ivey's evidence was Pinner wanted a meeting with Canon to be reassured about whether the CLC could become obsolete because of new technology. In cross-examination he gave the reasons for the meeting as being Pinner's concern about new technology, renting the machines and discussion about the machine drum. Only the latter is consistent with Ivey's proof of evidence in which he states he called the meeting to discuss with Canon how the problems with the machines would be remedied. He organised a meeting on 16 February 1989 at Canon's North Ryde offices which was attended by Blandford, Lagos, Heddle, Pinner, Quartermaine and himself. He said to the Canon representatives they were extremely worried about the performance of the CLC machine and, as they were going to expand to the Eastern States and sign up leases, they wanted to know the machines were going to be fixed. In addition he had told the Canon representatives if the machines were not fixed the applicants would give them back all the machines they had bought. No mention of this threat appears in Ivey's proof of evidence.

Quartermaine testified he went to Sydney around 14 or 15 January 1989 and the meeting was held the following day. It was attended by the same persons referred to by Ivey. He had gone to Sydney at the suggestion of Ivey to talk directly with Canon about the things they wished to raise. He did not give evidence of complaint or of the threat to return although he said they had wished to raise problems and did discuss how they were to be fixed.

Blandford recalled a meeting with four representatives of Instant Colour but could not recall the date. His memory of the meeting is vague but he thought it was to introduce Instant Colour's representatives to Canon's senior management. The applicants he considered present were Ivey, Ferguson, Ted Ivey and Quartermaine. He recalled the name Pinner but could not recall his face. While he could not recall all the Canon people present, he thought Tanaka, Richardson and himself were present. He was not sure whether Heddle was there and he could not recall whether Lagos attended. Blandford could not specifically recall Ivey making the complaints or the threat but it was possible they
were having problems with their machines at that time because that period was in the height of when Canon was having drum shortages.

Heddle testified he had not ever attended a meeting at Canon's boardroom with the persons pleaded. In cross-examination he said he had never had a meeting with Blandford and Lagos. He was not present when any such complaints or threats were made nor had Ivey made such complaints.

The evidence of Lagos was he had not attended a meeting in Sydney at Canon's offices in February 1989 with the persons pleaded. He had not attended any meeting at which Ivey had threatened to return the CLC machines. In cross-examination he affirmed he could not remember a meeting in February 1989 as pleaded.

I do not accept the submission for the applicants it is open to infer from the evidence of Blandford that Heddle was present. Having regard to the preceding evidence of Blandford, Heddle and Lagos, the unexplained failure of the applicants to call Pinner and the inconsistencies within and between the evidence of the applicants and between the evidence of Ivey and his proof of evidence, the appropriate finding is the applicants have not established the meeting as pleaded took place. The admission in relation to Ivey meeting Heddle is not an admission of the meeting as pleaded. I will test that provisional view in the context of the evidence relating to the other matters said to have formed the subject of representations at the meeting.

Offer to lease without security (31.3)

One of the representations said to have been made at that meeting is by Lagos who offered to lease the CLC machine to Instant Colour through Canon Finance without any security being required other than the machine.

Ivey's evidence was Canon would not rent the machines and would only lease them but Lagos had said the lease would be on the basis of them using the copier as security and no personal guarantee would be needed. In cross-examination he said Lagos' offer was a repeat of what he had said at the December meeting. At the Sydney meeting in February 1989 Quartermaine or Pinner had raised the question of the need for directors' guarantees. Lagos had definitely said there were no personal guarantees and "we will finance the machines with no other security than the machine alone".

Quartermaine testified Lagos said Canon were happy to lease Instant Colour machines and the machines themselves would be sufficient security. When Lagos had said the machine would be sufficient security he had understood that to mean no other security would be required.

Blandford could not recall whether it was said at the February meeting that Canon would be happy to lease Instant Colour machines and the machines would be sufficient security. In any event, it was not possible for that to be the case because it was not the way Canon Finance operated. I do not accept the submission for the applicants this latter evidence should be regarded as reconstruction: it is evidence of usual practice or system based on personal knowledge.

Heddle, whose evidence, as previously seen, was that he did not ever attend a meeting with the persons pleaded, also testified he was not present when Lagos offered to lease CLC copiers to Instant Colour without any security being required other than the machine. In cross-examination he testified that at none of the meetings which he had with Ivey was the question raised whether the machine could be leased in such a way the machine itself was to provide security without any independent guarantees.

Lagos, who could not recall the Sydney meeting, testified he had never made a statement leases could be arranged without the need for a guarantee or security. In cross‑examination he said he would not have made such a promise "for that level of finance" and he would not have had authority to implement such a promise. In re-examination he said by reference to the level of finance he was referring to "the two initial applications...in the vicinity of $80,000 and the ongoing business [which] had a potential of 40 machines, so up to nearly $2 million".

The evidence of Ivey and Quartermaine is in conflict with the evidence of Heddle and Lagos on this issue. I do not consider the evidence of either of the latter two witnesses can be regarded as unreliable. Given the failure of the applicants to call Pinner and the inherent improbability such a representation would have been made in relation to an unlimited number of machines, irrespective of the financial position of Instant Colour at the time it chose to apply for further lease finance, I am unable to accept the evidence of Ivey and Quartermaine on this pleaded representation.

No new version of copier (31.4)

It is also pleaded that at the Sydney meeting Blandford represented there would not be a new version of the copier for the life of the lease. For the respondents it is admitted the CLC500 and the CLC200, superior versions of the CLC, were released in 1989.

Ivey's evidence was Lagos said at the Sydney meeting there was no new technology on the drawing board for several years and at least in the life of the lease. He affirmed this in cross‑examination but said he thought it was Blandford who said it. Blandford would be wrong if he denied this. Blandford would not have known at the time the CLC500 was in the pipeline.

Quartermaine testified it was said to the applicants' representatives present there would be no new technology in the life of the leases of the machines. In cross-examination he said he believed it had been Lagos who had made that statement.

Blandford regarded it as impossible the pleaded statement would have been made because Canon are always releasing new machines. When one machine is released others are already on the drawing board and will be released in time. Consequently he had never said to any customer Canon would never release a new machine. In cross‑examination he affirmed it was impossible he would have made the statement and he tended to think no-one else would have because at Canon they all know it is a high technology company, introducing new products all the time. That is the nature of the business. He said the CLC500 had been presented to salespeople in July 1989 and placed on the market in September, but he had known of it at least 6 months previously. Ivey was wrong in stating the CLC500 had come out three months after the February meeting.

Heddle's evidence was he was not present at any meeting when Blandford said there would be no new version of the copier during the life of the lease.

Lagos's evidence was he had never attended a meeting at which Blandford or anyone else had said there would be no new version of the machine during the life of the lease. This was affirmed in cross-examination.

Ivey's evidence can only be accepted if Blandford's evidence is disbelieved. There is strong commercial probability implicit in Blandford's account. Quartermaine supports only the fact of the representation, not the making of it by Blandford. Pinner was not called by the applicants. In my opinion the applicants' case fails to establish the pleading on this issue is more probable than not.

I will return to the resolution of the representation concerning the Sydney meeting after considering the representation alleged to have been made at that meeting regarding a new drum.

Representations concerning the new drum

A number of pleadings were made concerning a new drum. They are dealt with collectively under this heading.

(a) The October meeting (28.5)

Here it is pleaded that Stokes represented at the October meeting there was a new modification to the colour copier which would radically improve its reliability and quality problems. It is admitted for the respondents parts were developed for CLC machines which had been upgraded to improve their durability and performance.

Ivey testified Stokes said at the meeting Canon's representatives said there were new modifications in the pipeline which would make a great difference to the machine. Later he said Stokes had said there was a new part being developed and it would improve the durability and performance of the machine but he would not tell the applicants what it was.

Ferguson gave no evidence in support of this aspect of the pleading.

Ted Ivey testified they were told at the meeting there was a modification available which would solve all their problems. In cross‑examination he added "or some of the problems".

Pinkerton's evidence was people in his position from all States were asking when was the machine going to be fixed and head office told them the Japanese would be releasing modified parts as soon as possible. He was told this by either Compton, Legge, Dobson or Brown.

Within six to 12 months of the machine being launched Gill asked Takahashi in Sydney about the problems with the machine in Australia and he said "he would fix the problem". Gill added there was always a great deal of confidence within Canon they would fix the problem in the short term.

Adolphe testified that at the October meeting they had spent over an hour discussing machine problems. Stokes had said to "Imageland" Canon was working on the problem and modifications
were being made by Canon Inc to the drums on the machines which they believed would certainly alleviate a lot of the problems. The main discussion at the meeting centred around the poor quality of the copier, the fact Canon was bringing out new drums to improve the quality of the machines and was training technicians to alleviate the service call difficulties. In cross-examination he disagreed there was no discussion concerning upgrading or improving parts.

Pleuss testified the topics discussed at the meeting were service issues, mainly reduction of service response times.

Kenny, whose memory of the meeting was vague, did not include this topic among those which he could recall as being discussed. His evidence was he had said to the applicants in a meeting a new drum had been developed which would remedy problems with the machines. He could not recall the exact date of the meeting but it could have been in October 1988. However, "we acknowledged there was a drum problem and supplies were being ...sought from...Japan". He could not recall whether it was said a new modification to the machine was in the pipeline which would make a great deal of difference to it.

Stokes could not recall making the statement pleaded but it was possible the conversation occurred because there were retro-fit parts out to enhance the performance of the machine. He regarded a statement that there was a modification available that would solve all problems as broad. He would not have made such a statement because it would not be possible to achieve what was said. He accepted in cross‑examination that later in 1988 he was aware of ongoing problems with the photosensitive drum. From his experience in the business equipment area he would be careful at being too premature in saying something was going to be available and it would work.

Ivey's evidence is consistent with the other evidence and the knowledge of a development being undertaken in Japan. I accept
it and find Stokes represented new parts were being developed which would improve the durability and performance of the copier. The precise terms of the representation as pleaded are not made out; there is commercial realism in Stokes' cautionary approach which, with Ted Ivey's evidence, does not support the probability of the making of an expansive statement in terms of the pleading.

(b) The Burswood meeting (28.6(b))

Here the pleading is that at the Burswood meeting Blandford represented to Ivey, Ferguson and Ted Ivey a new, improved photosensitive drum had been developed in Japan and would soon be available in Australia and this drum would fix all the applicants' problems.

Ivey's evidence was Blandford told them there was a new photosensitive drum being developed which would fix all their problems. It was being developed in Japan and would be tested in Australia in early 1989 and put into their machines about May. In cross-examination, however, he testified he did not think Blandford had said anything about testing, only that a new modified drum was being developed. He said one of the things the applicants wished to learn from the meeting was the nature of the new modification Canon were talking about. He believed a modification to the photosensitive drum would overcome all the difficulties caused by the need for frequent servicing. Although a letter from Les Richardson dated 24 January 1989 referred to the modified drum being available to install in February/March, his evidence was Blandford had said May. He believed the modified version would be installed from May 1989. Later he testified the provision of the modified drum was not going to be the answer to all the problems but it would be the answer to the major problem of colour quality falling off. In November 1988 Blandford had said the modification to the drum would fix all his problems. When they had complained to Canon about the reliability of the machine in October and November 1988 Canon had said there was a new photosensitive drum which would enhance the
performance and durability of their machine and help to fix their problems.

Ferguson could not remember Blandford mentioning any new technology.

Ted Ivey testified the meeting was the first that he had heard about the photosensitive drum. Blandford had said Canon was developing a new one or a modification and it would be available shortly and "that would solve all our problems". In cross‑examination he said they were told improvements to a drum were being developed. The new drum had been mentioned by Blandford in reply to the applicants "complaints". The development of a new drum was incidental to the main thrust of the meeting, which was to discuss the move to the Eastern States. It had been said Canon was developing improvements to the photosensitive drum and was developing a new photosensitive drum. That was as near as he could recall to what was said exactly. When asked whether Blandford had said "it would solve all the problems" he said he took what Blandford said to mean that the new drum "would solve all the problems of that particular part of the problem" because the applicants knew there was always more than one problem.

In examination in chief Blandford could not recall specifically any discussion concerning the photosensitive drum and he said he was not aware at the end of October 1988 of any problems in relation to it. In cross‑examination he testified at the 24 November meeting there was no discussion about an improved photosensitive drum. The statement that a new improved drum would fix all the applicants' problems was totally incorrect as he believed from his knowledge of the service of the machines they were the most service intensive piece of office equipment and no one thing ever solved all of the problems.

He could not recall any specific conversation about the drum at the time of the 27 October meeting. At that meeting he would not have referred to the drum at all as he did not recall knowing then a new drum was being developed.

Blandford said what he had done was to reassure the applicants in the face of their concerns about servicing. He would have reassured them by talking about the size of Canon, the investment the organisation puts into research and development, the size of the service department and those types of things of a general nature. He had not told them of technological improvements as a necessary ingredient of this reassurance. The applicants knew the machines.

Blandford said he had a belief Canon was constantly upgrading the machine as a standard part of its business. It was never necessary to talk to a customer about specifications and modifications because Blandford did not know of them in the sales department and it was something which just happens automatically in Canon.

Kenny testified the only topic he could recall at the meeting was the prospect of an increasing number of sales to the applicants and a better buy rate.

For the respondents it is contended there are inconsistencies firstly, between Ivey's evidence and his proof of evidence on the point and, secondly, between the applicants who gave evidence on it. In his proof Ivey said Blandford had said words "to the effect" that "a new improved photosensitive drum has been developed in Japan and will soon be available in Australia" and "the new photosensitive drum will solve all your problems". These inconsistencies are not such as to lead me to disbelieve the evidence of Ivey and Ted Ivey. They are no more than subtle linguistic distinctions in relation to the main point made by witnesses doing their best to recollect the language used at a meeting held at a distant point in time.

Then it is said for the respondents there is a shift in Ivey's version of the events in relation to the timing of the advent of the new drum. In the pleading it is asserted Blandford said it would "soon be available". Ivey said he had been told by Blandford the installation date would be around May 1989. It is submitted this is an invention of Ivey's to present a plausible explanation for the continued acquisition of copiers well beyond the time when assurances were alleged to have been given concerning the new drum. I do not consider Ivey's evidence in this respect has about it the character of invention.

I find the case for the applicants establishes that on 27 October 1988 Blandford represented to Ivey and Ted Ivey a new, improved photosensitive drum had been developed in Japan and would be available in Australia in May 1989 and would be the answer to the problem of colour quality.

This aspect of this pleading is that at a meeting at Canon's Perth offices and then at Subiaco in or around December 1988, Kenny, Lagos and Blandford, for Canon, represented to Ivey, Ferguson and Ted Ivey a new drum was being developed which would remedy the problems with the copier. As particularised, this allegation is to the effect Ivey complained about the poor performance and frequent servicing requirements of the copiers and Blandford stated a new drum was being developed which would remedy the problems with the copier.

The absence of a finding Blandford attended this meeting is fatal to this plea. Nevertheless I refer to the evidence otherwise relevant to it.

Ivey testified complaints were made by the applicants present about the problems they were having and Canon said new parts would fix those problems. Canon representatives were talking about a new photosensitive drum. There was a drum being developed and modifications to it. Although he was not clear, Ivey thought there was discussion of it being available earlier than May 1989.

Ferguson's evidence was there was no discussion regarding a new drum at the meeting.

Blandford's evidence related to a meeting on 24 November 1988 or in May or June 1989 and so cannot assist. I reject the submission that his evidence on that meeting should otherwise be taken to relate to the December meeting.

Pleuss could not recall any discussion about a new photosensitive drum at the restaurant meeting.

Kenny testified he could not recall saying in meetings with Instant Colour people a new drum had been developed which would remedy problems with the machines.

Lagos could not recall any talk about how the machines were doing, but it was possible the matter had been discussed. He did recall Ivey expressing some interest in new technology at the December 1988 meeting.

There is no evidence of complaint at this meeting. To the contrary, Lagos testified there was a mood of optimism at the meeting and he could not recall hearing anything about machine problems.

In my opinion the evidence does not support a finding either as to complaint or to the alleged representation by Blandford and is not made out.

(d) The Richardson letter (29)

The next pleading relating to the drum is that on or around 24 January 1989 Instant Colour received a letter from Canon under the signature of Richardson in which it was represented the new, improved photosensitive drum "was developed specifically to improve durability and therefore improve the overall performance and reliability of `the copiers'". It is admitted the letter contained those words.

I find the letter was received and read by and on behalf of the applicants. There was therefore a representation to them in those terms, which was not one by way of guarantee.

(e) The Sydney meeting (30, 31.2 and 31.5)

The relevant pleading is that on or around 16 February 1989 Blandford represented at the Sydney meeting a new drum would fix Instant Colour's problems "as per the letter of Les Richardson" and a new, improved photosensitive drum would be installed in the machines by Canon free of charge. No evidence was lead by the applicants to support this second aspect of the pleading. The previous finding in relation to the meeting is also fatal to the remaining aspect of this plea, although I proceed to test that in relation to the applicants' evidence on that aspect.

Ivey testified he had asked whether the Richardson letter was right and he had been told it was by the Canon representatives at the Sydney meeting. He had stated how pleased he was to receive the Richardson letter. Heddle had said Canon had received drums in their colour copy shops and were testing them and they were going well. He thought he had been told the drums would probably be available around May 1989. It had been confirmed that what Richardson had written was still accurate. Quartermaine's evidence was Ivey had said how pleased he was to receive the Richardson letter and discussed what it contained. Heddle or possibly Blandford or both had said they had tested a new drum and the results were good and it would be available in about a month.

Blandford could not recall saying the new drum would fix Instant Colour's problems as per the letter of Richardson but it was consistent with what Canon was saying to all of its customers at
the particular time. He regarded it as highly possible either he or Heddle had said the new drum had been tested and the results were good and the drums would be available within the month.

Heddle testified he was never present when Blandford had said to any of the applicants a new drum would fix Instant Colour's problems as per the letter of Les Richardson. He recalled a discussion with Ivey about a drum outside his office when Heddle had said Canon was testing a drum and it had gone quite well.

Lagos gave evidence to the same effect as Heddle in relation to the Richardson letter.

Ivey's evidence was not consistent either with that of Quartermaine or with his proof of evidence (on which the pleading is apparently based). Blandford's evidence admits of possibilities but Lagos and Heddle give strong evidence against the pleaded representation ever having been made. In my opinion the evidence does not establish as more probable than not that the representation was made as pleaded. None of the pleadings in relation to what is alleged to have been represented at the Sydney meeting having been made out, I find also it is not made out in the applicants' case that the Sydney meeting occurred as pleaded.

(f) The March 1989 representations (32)

The next pleading relating to the drum is that on or around 7 March 1989 Canon represented to Instant Colour it had successfully tested a new, improved photosensitive drum in its Canon Colour copy shops and it should solve the break-down problem. This is particularised as having occurred orally in a conversation between Ivey and Manuel for Instant Colour and Heddle for Canon at Macquarie, New South Wales. In the applicants' answers it is further particularised Blandford was present at the meeting. The applicants further particularise "the breakdown problem" by reference to:

"(a) answer 70 of the further and better particulars, which provides that the CLC machines were not capable of producing 20,000 copies between major services because of frequent breakdowns in copy quality, with the most frequent reasons for these breakdowns alleged to have been:-

(i)the continual failure of the drums of the machines.

(ii) corona failure (particularly the primary corona);

(iii) the failure of the transfer drum screen;

(iv) the failure of the OPC cleaning blade;

(v)the failure of the fixing unit (rollers and blade);

(vi) the majority of the "lifted consumable parts" failed prematurely.

(b)column of schedule 1 to the further and better particulars, which is a listing of all of the various problems which gave rise to service calls in each of the copiers operated by the applicants."

For the respondents it is admitted that in January 1989 Canon successfully tested an improved photosensitive drum and as from that date the drum was installed into copiers, including copiers used in its own Canon colour copy shops.

Ivey's evidence was Heddle told Manuel the drum had been going very well in their own colour copy shops and had done over 2,000 copies without breaking down. In cross-examination he said the meeting involved a little bit of discussion about the drum but it was mainly to introduce Manuel to Canon. He was still content with the prospect the modified drum might be available for installation in the machines about May 1989 and was happy to hear Heddle say they had done over 2,000 copies in the Sydney Colour Copy Shop and the machine was still going well. Ivey therefore did not give any evidence of a representation.

There is no evidence from Ferguson or Ted Ivey on this.

Manuel's evidence was he had just commenced his employment with Instant Colour. He was in Sydney for initial training. The meeting had taken place in a Chinese Restaurant. He said "Heddle said that they believed they had got the problem solved because they had been trying a new drum...It had done 4,000 copies and there hadn't been a problem with it and it looks like it'd solve all the...problems they were having with banding and...the
quality of the photos and oil on the drum and ...too much magenta...and numerous things that he said it was going to fix". In cross-examination he added to that list the problems of sharpness of the photos and paper jams. He testified Heddle said the new drum was going to fix the problem with the machine.

Blandford could not recall any meeting with Heddle and Manuel at the one time. He could not remember any statement being made that the drum was going very well in Canon's own colour copy shops and had done over 2,000 copies without breaking down. While he certainly met Manuel in Sydney he was not sure there would have been discussion about the drum. However, it was highly likely Canon would have given Ivey some indication of how the test drums were performing. There had been talk at the time about how the new drum was going to fix the problems with the machine.

Heddle recalled meeting with Manuel and Ivey but he could not remember Blandford being there. He said he could possibly have said Canon had successfully tested a new improved photosensitive drum in its colour shops and it should solve the breakdown problems. However, his understanding was the only problem with the drum was banding. While he might have repeated the comment that the drum had been tried in Sydney and it did 4,000 copies, he doubted he told Ivey Canon believed they got the problem solved because they were trying a new drum in their workshop and had already told Ivey Canon was testing the new drum in the City colour copy shop. He had not ever said the drum would solve all the problems of the machine but only that the drum would fix the banding problem.

In his evidence Ivey also testified Lagos may have been present. Lagos's evidence was he had not attended the meeting. There is no support for this aspect of Ivey's testimony nor for a finding that Blandford attended.

I find that Ivey, Manuel and Heddle met in Sydney on 7 March 1989.

I do not accept the submission for the applicants that the references by Heddle to events as "possible" or "likely" ought to be construed as indications of his belief that they occurred. I construe his evidence in the sense such events were not ruled out by him as inconsistent with what was likely at the time. Likewise Blandford's evidence shows the evidence for the applicants is consistent with the conduct within Canon at the time.

The evidence of Manuel is inconsistent with evidence of Ivey and other applicants and with the pleadings. The effect of Heddle's evidence is he "may have" said to Manuel the new drum would solve the banding problem. In my opinion the effect of the evidence is the only conclusion which is more probable than not is that Heddle told Manuel the drum was going very well and had done 2,000 copies without breaking down.

APPENDIX C

FRAUDULENT MISREPRESENTATIONS

The case for the applicants is as follows:

The plea of fraud is particularised by reference to a number of reports. First, there are reports received by Canon said to show the CLC machine presented with a number of major defects. Second, reliance is placed on a Colour Laser Report dated 1 September 1988 stating drums had been known to last as low as 500 copies and most would not last more than 1,500 copies. Third, a "Technical Addition to Service Plan" dated 3 September 1987 referred to the Japanese experience that copies which could be obtained between service calls (emergency and preventative periodic maintenance) was 1,050 copies and the maker of the report believed a PPM call would be required every 2,000 copies or two weeks. Finally, the CLC Market Quality Situation Report dated 19 November 1987 is particularised. Oral evidence in the applicants case ran as follows.

Copies between service calls (19.2)

The applicants first rely on oral evidence of various Canon salespersons. Pinkerton testified the standard referred to in this representation was never achieved. Richardson said it was an inaccurate statement. Soma gave evidence he knew the empirical data collected in Japan for August-October 1987 showed the machine was only achieving around 625 copies between service calls against the service plan provision for 1063 copies. No modification was made to the service plan. Stokes' evidence, in which he found the alleged representation unbelievable, has been described in Appendix B.

The applicants also rely on documentary evidence. The first is the Service Plan. Pinkerton identified this as a pre-release
launch document. It bore the signatures of Takahashi and Compton. It was stated under the heading of "Service Policy" that an estimate of 2 calls per month was based on an average copy volume of 2,500 copies per month. On 3 September 1987 a technical addition to the Service Plan stated, based on a copy volume of 3,500 copies, Japanese experience showed copies between total calls was currently 1,050 copies. CLC1 Market Quality Situation Report dated 19 November 1987 stated Japanese experience for the number of copies between unscheduled and scheduled service calls combined in 1987 for the months of August, September and October was 627, 632 and 663 respectively. Reliance is also placed on the log books for each machine, the machine detail reports and the monthly reports on copy quality for each month from July 1987 to October 1989.

Additionally the Colour Laser report dated 1 September 1988 it stated "drums have been known to last as low as 500 copies and most of them won't last more than 1500". Minutes of CLC Quality meeting (no 10) describe the number of copies between unscheduled service calls and scheduled visits combined as 691.

A report by Dr Cubitt provides a summary of the average copies per service call for all machines. This shows mean averages of 840, 864 and 909 copies on total for the applicants' copiers, depending on which statistical method is employed. The median figure for copiers between service calls for those copies ranges between 641 and 707 copies between services, again depending on choice of statistical method.

A compilation of data from the Monthly Service Result Reports for 1 January to 1 December 1991 shows the average number of copies between service calls achieved Australia-wide by Canon in respect of the machine rarely exceeded 2000 copies whether in relation to emergency calls or total visits.

In a faxed letter dated 10 May 1989 Jim Kent-Hughes and another on behalf of their business stated to Tanaka that in a
presentation made during March 1988 it had been stated "the down time should not be more than a day per 5000 copies". Blandford testified he was possibly aware of the letter. Pleuss's evidence was claims made to that effect should not have been made. Tanaka had Richardson reply and later replied himself but in neither letter was the claim in this respect denied.

In a memorandum dated 15 May 1989 from Blandford, Richardson and Tanaka, revised information to customers was circulated containing revisions about service intervals. They were told preventative maintenance servicing should be carried out each 2,000 copies with a major service each 20,000 copies.

For the respondents it is contended the answer to this pleading for the applicants is it could not have been an operative factor in any loss making decision of the applicant from September 1988 when they knew the service requirements of the machines. Further it is submitted it is equally clear no loss resulted from the use of the first two machines prior to that time. In response it is contended for the applicants there is no need to prove the occurrence of loss for exemplary damages to be awarded. These latter aspects relate to reliance and causation and not determination of falsity.

Tanaka was not called by Canon so I consider I am entitled to

more readily draw an inference fairly to be drawn from the other evidence that Canon had knowledge of these matters: Jones v Dunkel (1959) 101 CLR 298.

The witnesses for Canon with knowledge of the true position were so closely and relevantly connected with the company that their state of mind can be treated as identified with Canon's state of mind on this issue.

In my opinion the case for the applicants has established the representation and warranty concerning copies between service calls (19.2) was false. Canon was aware so as to have no honest belief in the representation and warranty.

Representations concerning copy quality, capacity to produce copies from slides and negatives and the ease of operation (19.12, 19.13, 19.14, 19.18 and 25) - par51 amended substituted statement of claim

The evidence on which the case for the applicants relies on copy quality and slides/negatives (19.12, 19.14, 19,18 and 25) is as follows.

Ivey's evidence was the machines could not focus on the full surface of the slide. The applicants had never been happy with the machines' performance with slides and negatives. The statement in the Internal Manual that "originals are brilliantly reproduced with even fine picture elements faithful to the original in every detail" was not accurate. It was not possible to obtain "a flawlessly crisp, clear copy every time on the copier".

Fiona Cost said of the machine at the Chadstone site that it had oil spills, banding, colour blinds, black lines and occasionally toner splashes.

Pinkerton testified the defective copies produced in 1986 were anything but "faithful to the original in every detail". It was fallacious copies would be flawlessly crisp and clear every time. The ability of the machine was outstanding and it was capable of doing all that was said of it, but it was not capable of doing it consistently in quality.

The applicants also rely on concessions made in the cross‑examination of Canon's witnesses.

Further, in a one page extract of a Canon Colour Laser Copier Technical Manual it is stated in discussing limitations on the machine that:

"...the prints are not of the same quality as those in high-quality printed material, such as magazine illustrations and in photographs. Each product has its own advantages and limitations, and users of the copier should be made aware of the capabilities of the machine..."

Under the heading "problems" it is stated "it is not possible to reproduce exactly the same density gradations as in the original".

In the memorandum of 15 May 1989 from Blandford, Richardson and Tanaka, the revised information for customers included a note on copy quality to the effect there are many difficulties in making high quality colour prints. For the applicants it is contended it is significant the prints were not described as "brilliant".

So far as the assertion of copy quality in the Internal Sales Manual is concerned (25), the applicants also rely on evidence of the respondents' witnesses. Blandford said the statement was accurate if the machine was in its serviced and operating state. Richardson testified the statement was generally true provided the machine is serviced correctly and working to specification. Pleuss' evidence was the copies would best be described as "good copies" by which he meant good quality copies. He said in cross‑examination he believed the statement was true although he understood it not to refer to colour every time. Kenny testified the statement was true subject to the copier being serviced. Stokes gave evidence that although he had seen the words in literature, his technical manual had said the opposite, comparing the photographic and Canon copies. However, he did not accept this was a denial of the copies being crisp and clear. Dobson in cross-examination did not agree the statement was inaccurate. The technical manual was put to him. He accepted what it was saying was that the copies produced by the machine would not be faithful to the original in every detail and the data contained in the technical manuals was different to the claims being made in the sales brochures.

So far as the issue of ease of operation is concerned (19.13) the case for the applicants relies on the following.

Ivey testified in cross-examination that once you learnt how to operate the machine it was fairly easy. He did not understand
the video to be saying anyone could operate it without learning. Pinkerton's evidence in cross-examination was operator training was of necessity more extensive than with a normal black and white copier.

The case for the respondents is as follows:

It is contended the documents relied on, so far as they comprise reports generated by Canon, provide no foundation for a plea of fraudulent conduct. The short answer, it is said, to the applicants claims in this respect is that the applicants themselves, with actual experience of the true position in relation to the performance of the copiers, incorporated the various statements now alleged to be made fraudulently in their own brochures. These statements appeared in the following three documents: (1) Imageland Color Laser Copier prepared in September 1988; (2) Instant Colour provided to Coles Myer in March 1989; (3) a similar brochure under the same title supplied to AMP in September 1989. The statements were:

" (a) Instant Colour is based around a Canon laser copier;

(b) this exciting new technology has been around for approximately six months;

(d) Imageland has proved that it also has enormous retail potential;

(e) the concept's only limitation is the client's imagination;

(f) utilising the impressive capabilities of the colour laser copier, Instant Colour offers a new kind of enjoyment from Photos;

(g) copies direct from colour slides;

(h) Imageland staff need only a few minutes to make a perfect full colour copy on the laser copier;

(i) we will demonstrate the beauty of images and at the same time transmit something of the fun that can be had playing around with photos...".

These attach extracts from Canon's Internal Sales Manual containing the following statements:

" (j) the unique combination of digital, laser and colour copying technologies lets the colour laser copier produce high-quality, high‑resolution for colour copiers;

(k) it is now possible to make brilliant full‑colour copies from 35mm slides and negatives;

(l) the colour laser copier is easy to operate;

(m) originals are brilliantly reproduced with even fine picture elements faithful in every detail; and

(n) no matter what the colour laser copies, from coloured charts and graphs to 35mm film and three dimensional objects, the colour quality will be flawlessly crisp and clear every time".

It is said for the respondents the true position is photocopiers require frequent servicing. The servicing requirements of a colour copier are greater than those of a black and white copier (see p4-5 of the statement by Soma). In that context it is submitted the various reports generated by Canon cannot be relied on by the applicants in support of allegations of fraud.

This submission is developed as follows. Copiers are sold in the knowledge they will experience problems which give rise to service calls. For that reason there is a service contract. The various reports are all consistent with this. They provide nothing more than a routine listing of matters giving rise to a need for service for machines known to be service intensive and the subject of constant upgrading and improvement. The vigorous pursuit in cross-examination of the respondents' witnesses in relation to the issue of fraudulent concealment had failed to disclose the reports were anything more than this or the difficulties with the machines were such the machines should have been withdrawn from the market.

As the case for the respondents views it, the true position may briefly be summarised as follows -

(a) the reporting system reflected in those documents was a routine procedure, the purpose of which was quality assurance;

(b) the system applied in the same format to all machines, including black and white and CLC200 and CLC500 machines;

(c) the items referred to as "major problems" identify in order of significance the most frequent causes of a customer's need for service, with a view to facilitating identification by Canon quality assurance of priorities in terms of improvements and modifications;

(d) as already mentioned, the CLC machines were by their nature service intensive machines;

(e) the fact problems recurred from month to month is not surprising given the fact a significant number of parts were consumable parts;

(f) the whole point of having a service department contracted to the customer under the Maintenance Guarantee Agreement was to provide service and replace those parts when required with a view to keeping the machine functioning properly, hopefully with as little delay to the customer in terms of response and labour times as possible;

(g) the fact problems remained under study or investigation for a number of months was neither unusual nor a matter for concern in the case of the CLC1 provided -

(i) the problem was not occurring so often as to make service intervals significantly different from what was expected; and

(ii)there was sufficient stocks of replacement parts to keep the machines functioning properly;

(h) the photosensitive drum was a problem for Canon in the sense is was less durable than its expected life (identified in the service plan as 10,000 copies) especially in low volume applications;

(i) this plainly would have an effect on the frequency of service calls, and in this sense the photosensitive drum was a problem for customers as well. However, the average number of copies between service calls was (with the exception of two months) always maintained at or above 1,000 copies. The performance compares well with the subsequent CLC200 and CLC500 machines;

(j) the drum was also a significant problem for Canon because of the pressure it placed on stocks and supply. This meant in January 1989 new installations had to be suspended so spare parts could remain available. It also meant the service department was placed under greater pressure;

(k) in fact the supplies of drums proved adequate and the service department was able to cope;

(l) save in that limited sense, there was no call to "withdraw" the CLC machines from the market on account of continuing drum or other problems;

(m) those problems simply provided a requirement for service. For example, if a drum produced banding it probably signified a need for its replacement. Until that occurred (at whatever volume) the machine was capable of producing excellent quality copies;

...

(p) the CLC1 was a technological breakthrough and at the time a machine full of amazing and unequalled capacity. It continued to be sold until 1990, well after the CLC200 and CLC500 were on the market;

(q) the suggestion there were inadequate field tests before launch is not supported;

(r) the related suggestion that Australian consumers were used as "guinea pigs" for testing purposes is demonstrably false. The machine was released in Japan, United States and Europe before its release in Australia.

Accordingly, it is submitted for the respondents the particulars relied on in support of the plea of fraud at par51 of the statement of claim, on analysis simply refer to documents which -

(a) identify the problems which give rise to service calls;

(b) identify the level of servicing required by the copiers; or

With regard to the reliance by the applicants on the extract from the Technical Manual, it is submitted that, as appears from the graph contained in it and Dobson's evidence, it would equally ground criticism of a claim that a photographic reproduction process produced faithful copies of the original.

It is said for the applicants in response that in the Hughes case Jenkinson J relied on the records and reports of Canon to
conclude, in the light of those records, a servant of Canon had no basis to justify a reasonable belief or expectation more optimistic than as shown by those records.

Nor do the applicants agree their case is that, because photocopiers experience problems which give rise to service calls, they should be withdrawn from the market. Rather their case is that the defects in the CLC machine were not of a minor nature and were incapable of correction so the machine should have been withdrawn from the market.

Furthermore, the seriousness of the situation disclosed in the reports must be viewed against the fact Canon was making claims against Canon Inc in respect of the machines and replacements were being made available.

Additionally it is said this is not a case where the problems experienced were solely loss of drum durability. There were the problems of defective copies, the impact on goodwill and downtime.

It is disputed for the applicants, correctly in my opinion, that the supplies of drums proved adequate and the service department was able to cope. It was part of the respondents' case that for a time it needed to suspend the installation of drums. Nor is it accepted the appearance of banding merely gave rise to a probability of the need to replace the drum; rather it was a certainty.

It is also the case that in cross-examination Soma said he could not say copies would be flawlessly crisp and clear 100 per cent of the time.

In my view the respondents' argument too narrowly describes the applicants' case on the issue of fraud. It is not a case resting only or principally on problems arising from service calls. Rather, it is the case the statements made by Canon concerning
the machine were such that Canon knew those statements to be false and could have had no honest belief in them. In the face of the reports and other evidence before it Canon would not, in my opinion, have been able to make the representations concerning copy quality and ease of operation as assertions holding true on all occasions. However, it is clear those particular representations were open to be made as statements of the optimum capacity of the machine working at its best.

The position concerning the assertion of copy quality in the Internal Sales Manual requires separate consideration because it contains an assertion of universal truth ("every time"). The Manual was given by Adolphe to Ivey near the end of August 1988. In my opinion Canon did not have grounds on which to honestly believe the statement in the manual at the time it was made. Soma's evidence was it could not be said flawlessly crisp and clear copies would be produced 100 per cent of the time. It was a statement which went far beyond the facts as known to Canon which told them flawlessly clear and crisp copies were available when the machines were working properly. I therefore find the statement in the Internal Sales Manual (25) was made without the requisite base for honest belief and so was made fraudulently. It is a statement which goes beyond mere puffery.

In relation to the other representations under consideration here, I find they were not made fraudulently because they were not a statement of universal truth concerning the performance of the machine and were capable of being met by the machine performing at its optimum.

The remainder of the representations: 28, 29 and 32 - par52 amended substituted statement of claim

It is further pleaded that in making the balance of the representations Canon acted fraudulently.

As to damp paper (28.4):

The evidence of continued mal-performance of the machines after the building of damp-proof cupboards establishes this representation was false. I am unable, however, to conclude Canon could not have had an honest belief in damp paper as a likely causal factor in machine mal-performance. Canon was aware of the locations of the applicants' machines. These locations in shopping malls were not unlikely to give rise to the problem of dampness. Pinkerton testified he had seen reference to damp paper in the applicants' log books. Dobson testified symptoms of damp paper were patchiness of copies and a green line. In those circumstances Canon was entitled to an honest belief in this factor.

As to the improvement to be provided by the new drum (28.5, 28.6(b), 29 and 32):

The representation in 28.5 as found is that at the time of the October meeting in 1988 the new parts were "being developed", not that the modification was then in place. The applicants state this representation should be found fraudulent because no new modification had been developed. In November and December 1988 the third generation drum had not been developed. Additionally it is said the third generation drum threw up its own set of problems and did not solve the applicants' quality and reliability problems.

It was not the case no new modification was being developed in Japan in October 1988. It was the understanding of Canon staff a new drum was being developed. Stokes testified by September 1988 he was aware the third generation drum was due by the end of November 1988 and its purpose was to improve quality, durability and fix problems with the machines. In Richardson's cross-examination he testified that in November 1988 there was an indication from Tokyo they were working on a third generation drum which would be available in the next few months.

This is consistent with Soma's evidence of the state of knowledge regarding the drum in Canon Inc.

I find Canon had a basis for an honest belief in this representation which consequently was not made fraudulently.

So far as the representation made at the Burswood meeting (28.6(b)) is concerned, it is contended for the applicants the third generation drum did not solve their reliability and quality problems. Then it is said the representation was made fraudulently because the respondents have failed to produce the necessary evidentiary foundation on which it could have been made. Blandford, it is submitted, could not have had an honest belief the drum would solve all the applicants' problems because it was known to him there were serious problems apart from those arising from the drum.

In the terms in which this representation has been found to have been made out, it was not false nor was it made without an honest belief in it. A new improved photosensitive drum had been developed in Japan and was coming to Australia in 1989 and it was fairly thought to be the answer to the problem of colour quality.

Turning to the representation in the Richardson letter (29), samples were supplied to Australia for further field tests early in January 1989. It is open to inference work had been proceeding on the field tests in the closing months of 1988.

Richardson's evidence was the basis of the first paragraph (that Canon had developed an improved photosensitive drum) was information Canon had received from Tokyo. When the letter stated the new drum had been developed to improve durability and therefore overall performance, he stated it meant there would be less service calls generated by the drum.

In support of this pleading the case for the applicants relies on a memorandum dated 30 January 1989 from Richardson to all service managers. In the memorandum it is stated:

"...the problem with the Color Laser Copier drum has not yet been resolved...we will receive five (5) new style drums for testing in January..it will be at least a further six (6) weeks before we get supplies of production drums..This means we will need to work with the old drums until at least the end of March....Consequently we must provide our Color Laser Copier users with top priority response times and service until the new
drums arrive....the following categories of customers in order of need for priority are :- 1. Copy shops set up with the Color Laser Copier as their principle production equipment...".

In the course of his evidence Richardson raised the issue whether the memorandum was incorrectly dated. He testified it was misdated and should have been dated 3 January. He adhered to this view in cross-examination on the ground he would not have written on 30 January 1989 that five new drums were to be received in January. The existence of a memorandum of 3 January 1989 from Richardson to service managers is supported by a memorandum of 11 January 1989 in which it is stated "further to my memo of 3rd of January regarding Colour Laser Copier Drums, we have since received information that the new drums will be available in February".

In the course of Dobson's evidence in chief he testified invoices show two test drums arrived in Australia on 29 December 1988 and three test drums arrived in Australia on 10 January 1989 (in fact the invoices shows estimates but, assuming air despatch, they more probably than not are actual arrival dates). For the applicants it is asked why on 3 January 1989 Richardson would write as he did given two drums had arrived.

It is not for the Court to speculate on whether Richardson did or did not know of the arrival of the drums as a consequence of the dispatch of the invoices (they having come into evidence after he completed his evidence). However, I consider it is patent the memorandum dated 30 January 1989 was not in fact sent on that date. More probably than not, given Richardson's letter of 11 January and the course of matters referred to in the letters, it should have borne a date prior to 11 January. Richardson's evidence in cross-examination was that he did not sign the memorandum on 30 January but he could not say when he did write it. Later he said he had not written the memorandum at the end of January. Canon's counsel put the suggestion the memorandum bore a date which was a misdating for 3 January 1989. The evidence is not present to enable a precise finding in that respect but I do find it was sent prior to 11 January 1989. I will refer to it as the "memorandum of early January".

It is then necessary to consider the applicants claims in relation to the letter of 24 January 1989 on the basis the memorandum bearing the date 30 January 1989 should have been dated early January 1989.

In that situation it is contended for the applicants in any event the statement in the Richardson letter of 24 January 1989 was made with reckless indifference as to its truth or falsity. Richardsons' evidence was he had been told by Canon Inc it had developed an improved photosensitive drum in the period from 1‑20 January 1989. He could not explain why then it was necessary for the drums to be tested. New drums were received in early February. These were the same as the test drums save the surface had a matt finish.

Richardson was acting on advice from Canon Inc. Although drums were available for testing, there was no reason for him to query advice given to him. Such testing was consistent with the fact Canon Inc had made the development of which he wrote. Canon Inc were not reckless in so advising him because, as the delivery in February showed, it had embarked on development of a drum which was considered to be an improvement.

In these circumstances I am unable to accept the submissions for the applicants that either Richardson or Canon acted with reckless indifference in issuing the letter of 24 January 1989.

For the applicants it is nevertheless contended reckless indifference was involved because, on the issue of improvement, no evidence was led concerning the nature and extent of the tests conducted. This, it is submitted, assumes significance in the context where there is evidence of prior failures of the first and second drums and prior expectations of Canon that each would solve the problems which proved to be inaccurate. The letter of
24 January 1989 stated "testing carried out on a small sample of drums already received by Canon Australia has so far shown encouraging results and we are very confident that this measure will be effective in improving Colour Laser Copier performance". It is said the testing was conducted on a very small sample base of four drums, one being excluded because of damage in transit. The test result reports were not discovered or produced.

Richardson's evidence was the test reports were completed by Browne and Dobson in collaboration with Takahashi. Neither Browne nor Takahashi were called.

It is contended for the applicants it is open to inference neither their evidence nor the test results would have assisted the respondents' case : Jones v Dunkel. Such an inference can only be drawn when evidence is led of facts requiring an answer: Jones (supra) at 321-2. Here the case for the applicants asserts without proof that the test results were not encouraging. No facts being led on that issue, there is no room for the operation of the rule in this instance.

The applicants rely on evidence of Richardson that he did not read the test result reports or attend any of the Victorian sites to see the results on copy quality. However, Richardson's evidence was he was orally informed of the test results by his technical staff.

Then there is evidence of the scope of the tests. Richardson could not recall the period the drums were tested. Where one drum was replaced after 13,000 copies its testing would have lasted about 58 days and he would not have known the outcome of that test in January. He accepted a test on only four drums was very small. The drums were only tested in Sydney and Melbourne. They were prototypes not production drums and had a matt finish.

Richardson's evidence was testing commenced in the first week of January. In the Bimonthly Report on Copier Quality for January
and February 1989 it was stated the status of testing new prescription drums was (1) 5,459 copies after 58 days and the test was continuing; (2) 2,177 copies after 35 days with the test continuing; and (3) 13,177 copies in 34 days when the test had to be terminated because of need to replace the drum. Tests were therefore on-going in January. I do not consider that meant Richardson would not have been told test results to the date of his letter; only that his letter must have been written without final test results being available. He conceded the third paragraph in the letter was based on the four samples received into Australia, which had only been tested for a period of time in January, and the information he had received from Canon Inc. Although it was the case the drum received on 9 January was installed on 16 January, four days before the letter of 24 January was typed, the drums received at the end of December had been on trial.

The case for the applicants also relies on certain documentary evidence. On 20 January 1989 Richardson wrote to dealers stating "Canon Tokyo has acted quickly to develop an improved drum unit and initial results of tests conducted in Australia give us confidence in a much enhanced durability and performance from the new drums". On the same date he wrote a letter to customers advising Canon have developed an improved photosensitive drum specifically to improve durability and so to improve the overall performance and reliability of the copier. He also stated "testing carried out on a small sample of drums already received had shown encouraging results". In the memo of 24 January 1989 directed to a distribution list Richardson stated "the results of the test carried out on the new drums are so far proving very positive and we are confident the CLC performance will dramatically improve once the new drums are in use".

For the applicants it is also argued that, as the statement concerning testing in the letter from Richardson to the second applicant is identical to a statement in a letter from Richardson to customers dated 20 January 1989, the statements made in the
former must be viewed as at the latter date. I accept it is relevant to finding the time at which Canon made its judgment concerning the tests. Although the liability of the respondents to the applicants on the representation has to be determined at the date on which the representation was made.

There is a further aspect of documentary evidence relevant to this issue. Richardson was not called on to produce any documents relating to the machines which had the test drums installed in them. It was not until much later in the trial that counsel for the applicants was able to discover those documents. No cross-examination of Richardson on them was then possible. There are difficulties with the documents as produced which support a conclusion not all relevant documents have been produced to show when the field test drums were installed, into which machines they were installed and the test results. What the documents do establish is the first two test drums arrived in Australia around 29 December 1988; the remaining three drums arrived around 10 January 1989. They raise the possibility one of two drums replaced on 16 January 1989 after only 3,328 copies was a test drum and the probability a test drum was replaced after 2,982 copies.

In argument of this issue the applicants place general reliance on the data relating to the performance of the machines as shown in the Cubitt Report.

Then it is contended for the applicants the Court should infer from Canon's failure to produce the field test reports they have been deliberately destroyed. In my opinion the foundations for that inference are not open and this is not an instance where the principle in The Ophelia [1916] 2 AC 206 at 229-30 can be applied: cf Allen v Tobias (1958) 98 CLR 367 at 375.

For the applicants it is contended the representation was false because the test at one location had not at the time of the making of the representation been successful; the respondent has
not discharged the onus of establishing evidence to justify the representation; the applicants experienced breakdown problems when the third generation drum was installed; the respondents continued to supply second generation drums to the applicants from early 1989 and continuing.

It was the fact, however, that, while the third generation drum produced its own problems, it achieved significantly greater durability than the second.

The critical factor in considering the alleged falsity of this representation is the state of Canon's knowledge at the time it was made by Richardson. There was evidence on which he could have honestly believed the representation and examination of the position concerning the test results does not lead to a different conclusion.

I find Richardson for Canon made the statement concerning drums in the memorandum of 24 January 1989 based on what he had been told by Canon Inc and with regard to the fact field tests were progressing but with minimum opportunity to have actual test results in Australia. In my view it cannot be concluded Richardson was reckless in so doing.

As to the March representations (32):

For proof of falsity of this representation the case for the applicants relies on the submissions made in relation to the Richardson letter. The case not having succeeded on that letter, it is not made out in respect of the March representations.

APPENDIX D

TRADE PRACTICES ACT REMEDIES

The pleading of these issues (par44) asserts the representations and warranties in pars19, 25, 28, 29, 31 and 32 were false, untrue, misleading and deceptive. Then follows specification of the ways in which that is said to be so, in effect a negating of the positive fact asserted in the relevant representation. The pleaded particulars are that average copies per service call was low; average copies before change of drum was low; machines were inoperative on numerous occasions and used "numerous" drums since installation and commissioning; the machines experienced major problems in the market place from at least the end of 1987 and early 1988 being banding on drum, defective upper fixing roller, defamation of transfer drum sheet, fuzzy image, oil spotting and short life of upper fuser rollers. Further it is particularised the machines were incapable of consistently producing commercially acceptable and/or saleable copies or reproducing colour photographs perfectly. These particulars have not been related to the date of each representation nor to its character as a statement of existing or future fact.

In the case of representations 19.2 (copies between service calls) and 25.1 (copy quality every time), the evidence which established the absence of any basis for honest belief in that statement also establishes the representations were likely to lead into error.

Turning to the representations not alleged to have been made fraudulently but having been found to be made:

Response time of service technicians (19.4)

For the applicants it is first contended this is a promissory statement which attracts the provisions of s51A and s52 of the TPA. The finding the representation was made not as a warrant
(promise) but as a statement of a target. It was therefore a representation with respect to a future matter. Pinkerton's evidence was that on most occasions the 2 hour response time was observed. In my opinion the evidence adduced by Canon establishes there was a reasonable basis for this representation.

Sales of 4,000 copies per month (19.5 and 19.24)

Likely profitability (19.22 and 19.28)

(No finding was made of a representation in terms of 19.23)

These are both future representations addressing expectation and likelihood. For the applicants it is contended the only evidence led for the respondents (cf TPA s51A(2)) was the Whitfords demonstration which was too short to justify the claims. In my view that experience provided reasonable grounds for these representations at the time they were made.

Resale value (19.7 and 19.27)

In my opinion these representations relate to future matters and no reasonable basis has been shown for them by the respondents. There was no history of sales of such machines or research concerning the probable resale value or evidence of likely commercial rule. Section 51A(1) applies with the result the representations are misleading.

Copy quality (slides/negatives) (19.10, 19.11, 19,15)

(No finding was made of a representation in terms of 19.26).

These three relate to video statements. In the written submissions for the applicants on misleading and deceptive conduct is pressed only in relation to the above-numbered paragraphs of the video representations.

For the applicants it is submitted the representations comprise statements concerning existing fact (namely the capacity of the machines to produce copies of certain grade) and future matter (namely future capacity to produce such copies) and there is no reasonable ground established in discharge of the reverse onus pursuant to TPA s51A(2). I do not accept the submissions there were no reasonable grounds.

The statement (19.10) that the machine would deliver "the highest quality colour copies" is supported by the evidence that the technology of the machine was ahead of all competitors in producing colour copies, the quality of them necessarily being the highest available. Furthermore, the evidence establishes when operating without problems the colour copies were of the highest quality.

The statement (19.11) falls to be considered in the context of the same evidence. New imagery was created, the technology was exclusive and the combination was an act of unsurpassed creativity.

The statement (19.15) in relation to brilliant full colour copies of positive slides and negative film was made on a reasonable basis because there was then no faster, more economical way to get brilliant full colour copies of positive slides and negative film. The implication of the representation was that the machine was fully operational when producing such copies. In my opinion that implication would be so well understood that it was not necessary for a qualification to be expressly made to that effect. Accordingly, I do not consider this representation was misleading and deceptive.

So far as these representations related to existing fact they were not likely to lead into error provided the machine operated.

Ease of operation (19.16, 19.17)

For the applicants it is said this representation relates to an existing matter. It is submitted on their behalf the statement most maintenance tasks could be done by anyone who uses the copier was without foundation. In my opinion the evidence including the subsequent evidence establishes a number of maintenance tasks could be done by the operator but not that "most" of them could be so done or were so done. There was no foundation for the representation that "most" such tasks could be so done so that it was false and misleading and deceptive.

The statement any paper jam can be cleared up right away (19.17) was also pressed as a statement of existing fact. On the applicants case the issue falls to be considered in the context of the reports and records of Canon which reveal the machine presented with the continual problem of "paper jam" (referred to in the technical reports of Canon as "J34"). This required the attendance of a technician. The evidence is considered in the discussion of this representation under the heading of negligent misstatement. In my opinion the evidence establishes when the representation was made it was likely to lead into error.

Service in every major centre (28.6(c))

This statement was made as a future statement. As made out, this statement is referrable to every major city. In my view the respondents' case brings evidence which shows the statement in the terms found to have been reasonable. Consequently s51A does not operate to deem the representation misleading.

(The statement alleged in 28.6(d) was not made out).

Representations concerning the drum (28.5, 28.6(b), 29 and 32)

The representation in 28.5 was future in character. There was evidence adduced by Canon that in October 1988 new parts were being developed to improve the durability and performance of the copier; that is, the third generation drum was being developed. Canon has discharged the onus on it so that s51A of the TPA does not apply. Based on this evidence it was not false.

For the same reason, future representation 28.6(b) was not misleading when it referred to the development of the new drum and its forthcoming availability in Australia. The question remaining is whether the prediction that it would be the answer to the problem of colour quality transgressed s52 of the TPA. In my opinion it was not a misstatement of past or existing fact. The only question is whether the later performance of the drum gives rise to an inference that some qualification should have been made at the time the representation was made, assuming that to be open to argument: Wheeler. Such an argument was not made for the applicants. The test results of the third generation drum in January 1989 would not support such a retrospective inference. The only question then is whether the subsequent performance of the third generation drum made representation 28.6(b) misleading and deceptive when made without qualification.

The Richardson letter (29) was a statement of existing fact. The claims made by Canon through Richardson were that the (third generation) drum had been developed specifically to improve durability and therefore the overall performance and reliability of the copier. It was the case Canon had developed an improved photosensitive drum for the CLC after considerable research and development. The representation was true in both of its limbs.

Nevertheless representation 28.6(b) and the Richardson letter require consideration in the context of the ongoing discussions between Canon and the applicants. As Blandford's evidence in relation to 28.6(b) shows, the applicants were being reassured by Canon that it was a large company with substantial input to research and development and a large service department. Canon was aware of the projected Eastward expansion of the first applicants' business.

In this context the question arises whether the applicants expectations of the new drum were erroneously overdrawn from representation 28.6(c) and the Richardson letter considered in their context. Where there is evidence a recipient of a
representation has formed an erroneous conclusion, it will not be conclusive of the fact that the representational conduct was misleading or deceptive although it may be persuasive: Taco at 202-3. It is therefore necessary to inquire why the misconception arose: Taco. For this purpose the effect of the conduct must be tested by reference to reasonable members of the class to which it was directed: Parkdale at 199. The question is therefore whether it would have been reasonable for reasonable members of the class to which those representations were directed to have formed the same erroneous conclusion as the applicants.

In my opinion, the failure of the applicants case to make out the pleading that Canon represented at the Burswood meeting that the new drum would fix "all the applicants' problems" carries with it the consequence that any expectation by the applicants in those terms would not have been reasonable. It cannot be the case therefore that either representation 28.6(b) or the Richardson letter when considered in their context were misleading or deceptive.

Representation 32 as made out was of existing fact. It was true and not likely to lead to error.

APPENDIX E

RELIANCE AND CAUSATION

The initial representations as an inducement to the first agreement (Claim par21)

The evidence on which the case for the applicants relies to establish reliance is as follows.

Ivey's evidence was that, as a result of speaking to Adolphe and seeing the Whitford's City demonstrations, he thought the machine was very good. At a family barbecue shortly afterwards there were discussions of buying one or two machines and making them into a small family business. A decision was made to buy two machines.

He said when the first agreement was entered into they were fairly excited about what Canon had shown them. He relied on the video which he remembered had told him he could maintain the machine very easily and it would do brilliant copies faithful to the original every time. His evidence was he believed that and everything Canon was telling him "and 18 months later I was still believing it". He testified he relied on the statements in the video concerning brilliant colour, faithful reproduction and ease of operation.

Ivey's evidence continued to the effect he and Ferguson had decided to do feasibility and market research into operating a colour copy business similar to that witnessed at the Whitford City demonstration. Ivey, having real estate experience, ascertained the availability of shopping centre sites. Ferguson investigated marketing. These investigations commenced on or about 14 July 1988, that is approximately 2 days after the first meeting at Canon's offices. Ivey prepared a report on the sites dated 14 July 1988.

In cross-examination he denied it would have been impossible for anyone in Adolphe's position to tell him the minor service would take less than an hour, saying he believed Adolphe.

Ferguson's evidence was that after the initial meeting with Adolphe he went back to Canon almost every day of that week with photographs to be copied while Adolphe demonstrated further features of the machine. He corroborated Ivey's evidence of the investigations carried out by each of them. He conducted his market research by talking to family, friends and business colleagues, about ten to 20 people. After further discussions with Ivey they decided to go ahead and purchase the machine.

For the respondents it is pleaded the applicants did not rely on the representations. Rather they saw a niche market to be filled and so purchased the copiers. This was not put to either of Ivey or Ferguson in cross-examination. Even if they perceived such a market, it was that which led them to seek information from Adolphe before making their decision to go into the copying business.

The initial and the further representations as inducements to the second and variation agreements (Claim par27)

Ivey's evidence was he read the Internal Sales Manual the night he received it and he also gave it to Ted Ivey. He was impressed by the reference in it to copies which would be "flawlessly crisp and clear every time" and the machine could make 35mm negatives faithful to the original. He said he did not doubt the truth of those statements. He relied on them. He denied this was a reconstruction by him. The statements were not new because he had heard them in the video.

So far as problems with the machines which they had were concerned, Canon kept repeating the problem would be solved. Ivey said he believed them.

Ivey testified that in September 1988 the Imageland Colour Laser Copier Brochure was used to advertise the Imageland business. A portion of it was written from the Canon brochure. This copying occurred because the applicants believed Canon's information. One page was copied from Canon's Internal Sales
Manual. His evidence was at that stage he believed the statements in it were going to be accurate.

Ivey's evidence was "they" believed Canon when told the problem would be fixed. He believed the problems with the machines were teething problems and the machines would soon start operating as represented.

Ferguson's evidence was Adolphe had given about 12 copies of the Internal Sales Manual to him between 12 and 19 July 1988. He read it. He and Ivey used it a lot to make other brochures. The Imageland Colour Laser Copier brochure had been prepared to show shopping centre managers in support of applications for space. His evidence was 99% of it came from a Canon brochure.

The brochure had been prepared around the time of the purchase of the copiers and were used until Ivey and he went to the Eastern States.

Quartermaine testified he was convinced after reading the Internal Sales Manual the copier was excellent. He felt confident about it and relied on it.

It is contended for the respondents that by September 1988 the applicants knew from their own experience and independently of any of the representations, what the position was concerning the performance and servicing requirements of the copiers and the profitability of a business using the copiers.

To this the applicants reply they had only been operating their business for approximately one month and so had no or little relevant experience to suggest the representations were not true. Additionally they had been reassured by Canon the problems would be fixed. Their use of Canon information in their brochure is indicative of their trust in and reliance on Canon's statements.

The initial, the further and the continuing representations as inducements to the further purchases and leases and the continuance of the business (Claim 42)

Evidence relied on for the applicants is as follows.

The effect of Ivey's evidence is that Blandford's representation at the Burswood meeting, the Richardson letter and the March 1989 representations (the latter of which has not been made out) had an effect on his mind and led him to believe in the future of the copier. He also testified his view about the chances of success in the Eastern States was they were very good. In May 1989 the takings on one day had been $4500 and he thought the business was good if Canon could get the machines right. However, he did not have anything to do with the daily figures.

Ferguson's evidence was only to the effect that the Richardson letter led him to believe Canon were going to fix the problems.

Quartermaine testified the Richardson letter caused him to consider the problems with the machine were about to be remedied. He believed the business was going to be a good one and he formed that view from reading the Internal Sales Manual and taking into account the Richardson letter. (He also testified concerning the effect of the Sydney meeting but the pleading on that meeting has been found not to have been made out).

Ted Ivey gave evidence he believed the representation made by Stokes at the October meeting. The Burswood meeting led him to think the future of the applicants' business was fine. The Richardson letter had given him confidence the problems would be solved.

Mincherton testified the Richardson letter made him realise there was a problem, which had been raised with Canon and acknowledged by it and it was going to do something about it. Subsequently he decided to invest funds in Instant Colour.

Argument for the applicants places reliance on evidence of Ivey and Ted Ivey of a threat to return the machines unless the problems were fixed, which was alleged to have been made at the Sydney meeting. That evidence falls as a consequence of the finding concerning the Sydney meeting.

For the applicants it is contended it was reasonable for them to rely on representations made by top ranking executives of Canon and, in reliance on those, to take delivery of further machines and expand their business.

Evidence relied on for the respondents:

(1) Evidence the applicants did not consider the new drum would solve all the problems

The evidence relating to representations concerning the new drum are set out earlier. That shows Ivey's only evidence of any representation to the effect Canon would solve the major problem with the machine was of a representation in November 1988 at the Burswood meeting (28.6(b)). His subsequent evidence was of a test drum performing over 2,000 copies without breaking down. For the respondents it is submitted this indicates Ivey's understanding of what Richardson (in the Richardson letter) and Blandford (at the Burswood meeting) had said was simply that a more durable drum had been developed which would improve the overall performance of the copiers. That is consistent with the finding made on this representation.

Furthermore, it is submitted as part of the respondents' case that Ivey's attempts to suggest he thought all problems with the performance of the copiers would be solved by the new drums did not stand up in cross-examination. There he acknowledged that the drum was not the only problem with the machine but maintained it was the major problem.

Ferguson did not give evidence that he thought the drum would solve all the applicants' problems. Rather he sought to rely on unpleaded representations to the effect the machines would be fixed. His evidence was that he always did the cashflows on the basis of the experience of what the machines produced.

Ted Ivey's evidence was to the effect he entered on expansion on the basis the machines were going to improve and work properly. He gave no evidence of the extent of the improvement he expected. No evidence was given by him of the particular respects in which the machines were not working properly or of any calculation of how he thought profitability would be affected. He executed a guarantee for Canon Finance dated 24 April 1989. He resigned as a director of Instant Colour in July 1989 without any complaint having been made or action taken in relation to any alleged representation. In the notes of the meeting of directors held on 3 July 1989 he attributed the company's problems to the fact it had outgrown its capital base, with no mention being made of any complaint concerning the performance of the copiers. His evidence concerning the representations has been set out in Appendix B in relation to paragraphs 28.5 and 28.6(b).

Quartermaine relied on the Richardson letter (which has been seen to be a prediction of improvement which occurred). He testified Heddle and Blandford said the machines were going to be fixed and their problems were going to be resolved; that mainly the drum was going to fix the problem. No such representation is pleaded at the February meeting. Additionally his evidence concerning his understanding of the extent to which the problem would be fixed shows it was to the extent of the Richardson letter: namely, the installation of a more durable drum and an improvement in the overall performance of the copier.

Quartermaine's belief that a new drum was to be installed in February 1989 provides no basis for a conclusion the assertions concerning the drum played any role in the ongoing expansion of the business well after the time for installation of the drum had passed. There is no plea and no evidence of any further assurances subsequent to the time when Quartermaine understood
the new drum was to be installed, and nor is there any evidence as to what Quartermaine thought was the true position after the time when he expected the problems to be fixed had passed. In June 1989 he signed the guarantee sought by Canon Finance which is inconsistent with any unfulfilled assurances having been made to him concerning an improvement in the performance of the copiers.

Mincherton's evidence was he relied on Ferguson telling him the machines would be fixed. He said he also relied on a letter shown to him by Ferguson stating Canon recognized the problem and was going to do something about it. I accept the submission for the respondents that Mincherton's reliance falls with Ferguson's failure to lead any evidence of reliance on any pleaded representation.

Mincherton also gave evidence of further assurances said to have been given to him by Ferguson and Quartermaine in August and September 1989. These are not supported by evidence of Ferguson or Quartermaine. It is not credible that Ferguson and Quartermaine would have been giving such assurances at that date given the nature of the applicants case.

(2) Evidence of continued acquisition and expansion in the belief, based on experience, that operations could be profitable notwithstanding copiers' service requirements and independently of any alleged representations.

Ivey testified that both in September 1988 and March 1989 the potential of the machine and the huge customer response overrode the breakdown problem. When asked in cross-examination whether the insufficiency of capital for the expansion into the Eastern States was the root cause of the demise of the business, Ivey said March, April and May 1989 had been months in which the business had been going very well.

Ferguson testified that although they had problems with the machine and its quality and its breakdowns, there were problems
with some of the sites but the business nevertheless looked exciting. When the order was placed on 26 September 1988 for another eight copiers (and therefore before any of the representations in pars28 to 32 were made) Ferguson thought the copiers were a great business because of the virtually unlimited customer support.

In a document prepared by Imageland in September 1988 the applicants projected sales of 5,715 copier per month as part of the cashflow. I reject Ivey's evidence that although he knew by that date the machines were being serviced far more frequently than once every 5 to 10,000 copies, he was being told more technicians would be trained to look after the machines. That is inconsistent with his evidence that the representations were made between October and November. It is also inconsistent with the pleaded date for them of early November.

In September 1988 Imageland stated in another brochure that it had proved the copier had enormous potential. In an application for assignment of lease dated 20 September 1988 Ferguson asserted the applicants had successfully operated the copiers in the retail market.

The three machines operated by the applicants prior to their decision to expand East had the following records. Machine 224 averaged 6115 copies per month to 29 September 1988; 5112 copies to 16 November 1988; and 4020 copies to 3 February 1989. Machine 203 averaged 7,900 copies to 29 September 1988; 5,990 copies to 16 November 1988; and 5013 copies to 3 February 1989. Machines 242 averaged 10,770 copies to 16 November 1988.

Imageland made projections of profit (apparently with reference to August and September 1988) independently of any representations as to price per copy or copies sold per month. Similarly on 5 January 1989 Imageland described expansion plans to Klikk Limited, a division of Kodak. These included projections showing the profitability based on actual figures.
A cash flow projection prepared around February 1989 contained a projection based on then present trading figures of a net profit of $114,600 per copier.

In March 1989 the Instant Colour brochure provided to Coles Myer stated it had proved the copier had enormous retail potential.

On 1 May 1989 Manuel stated in a memorandum to Ivey and Ferguson "we are showing the potential that we expected, to be excellent". On 15 May 1989 Manuel stated in a further memorandum to Ivey and Ferguson that "Northlands continues to impress with exceptionally high figures".

Ivey testified that between March and June 1989 the business was doing fairly well. Fergusons' evidence was also that the first 6 months of 1989 were very good and basically the business was showing the Eastern States was going to realise the potential.

In September 1989, when the applicants knew the true position in relation to the matters the subject of the alleged representations, they did not seek to return the copiers to Canon on the basis their purchase had been induced by serious misrepresentations. Rather Instant Colour applied for a permanent lease at Corio Village. In the application, Manuel projected income of $200,000 per annum. Performance of the copier was identified as "the point of difference" for its business.

In the same month Instant Colour supplied its brochure to AMP in which it was stated the copier had enormous retail potential.

In October 1989 the applicants recorded that they proposed to sell 5 shops to bring them back to 7 or 8 shops. This was included to give the company a strong capital base.

Draft advertisements for sale of Instant Colour businesses describe the business as having an excellent cashflow, as being
part of a nationwide chain and as making an ideal family business.

On 18 November 1989 Instant Colour wrote to Canon concerning its decision to sell off some of its sites. In the letter, which was signed by Ivey, it is stated there is very little future in colour copy shops because financial institutions were equating them to the video shop industry of 5 years ago. Instant Colour said this was the result of colour copy outlets being set up in poor locations without proper marketing, promotion, products or the ability to buy products at better than competitive prices. It stated the directors of Instant Colour were currently setting up a wholesale division in all States to supply all Canon Colour Shops with add on requirements. Under the heading "marketing and promotions" it was said Instant Colour was currently averaging $10 or better per copy sold "and this is because we use the Colour Copier as a vehicle to sell other very profitable lines...". Under the heading "buying power" it was stated "the large volumes of sales generated by our chain of stores has enabled us to purchase our products at extremely good prices". The letter then proposed a joint venture with Canon in which Instant Colour would supply all Canon colour copy shops with their add on requirements such as laminating, frames, jigsaw presses and other items as well as marketing information and ideas. No mention was made in the letter of any concerns about the performance or service requirements of the copiers or of any of the alleged representations. To the contrary Instant Colour demonstrated its confidence in the ongoing viability of colour copy shops using Canon copiers by the nature of the joint venture proposal.

Ivey testified in cross-examination that while this letter was written on the letterhead of Instant Colour, he was only the person introducing another company (Happy Snaps) which did do the deal with Canon. Ivey denied, despite the contents of the letter, that it was particularly his view that the attraction of a business such as Instant Colour's had been lessened by poor
operators having come into it. Rather it was an attempt to get Canon to come into the market with value added products.

Ferguson was not familiar with the proposal and Manuel had not discussed it with Ivey.

Blandford said Canon had proposed the joint venture idea and concluded it with people with whom Ivey was associated other than Instant Colour.

In my opinion the fact of the letter having been written by Ivey indicates a confidence by him in the viability of the businesses based on the copiers. Additionally I am not persuaded by his evidence in cross-examination that the views expressed in the letter did not represent his observations of the state of business at the time.

Finally, profit and loss statements prepared by Ferguson for dissemination among potential purchasers showed Instant Colour's copy shops could be operated profitably.

(3) Evidence the copiers could be operated profitably notwithstanding their servicing requirements

The performance of CLC334 was, at an average price of $7 per copy produced, to generate income of $18,277 per month during the period from 24 April 1989 to 26 June 1989 while requiring service calls to be placed every 799 copies; and $18,543 per month during the period from 26 June 1989 to 31 August 1989 while requiring service calls to be placed every 499 copies. These monthly figures show the copiers were capable of generating income at high levels (equating to a total income of about $215,000 per annum) over a sustained period from April to August 1989 notwithstanding the levels of servicing required. In fact, CLC334, notwithstanding its servicing requirements and the drum problem experienced with that machine, produced 28,529 copies during the 12 months to December 1989, or an income of $200,000 at $7 per copy. This compared to the annual income of the successful Lynch business operated with a CLC200 of $139,000. During the period from 19 December 1988 until 29 December 1989
CLC203 produced 27,428 copies, or an annual income at $7 per copy of $191,996. During the period from 20 December 1988 to 7 December 1989 CLC224 produced 23,873 copies, or an annual income at $7 per copy of $167,111. During the period from 21 December 1988 to 21 December 1989 CLC242 produced 30,697 copies, or an annual income of $214,879 at $7 per copy produced. During the 12 months to December 1989, CLC334 produced 28,529 copies, or an income of $200,000 at $7 per copy. During the period from 3 April 1989 until 23 april 1990, CLC381 produced 27,806 copies, or an annual income of $194,604 at $7 per copy produced. During the period from 28 February 1989 until 28 February 1990, CLC406 produced 51,051 copies, or an annual income of $357,357 t $7 per copy produced. During the period from 20 February 1990, CLC414 produced 20,479 copies or an annual income of $143,353 at $7 per copy produced. During the period from 1 May 1989 until 26 April 1990 CLC443 produced 39,857 or an annual income of $278,999 at $7 per copy produced. During the period from 26 June 1989 until 3 May 1990, CLC512 produced 24,163, or an income of $169,141 over a period of 9 months. During the period from 9 October 1989 until 17 May 1990 CLC571 produced 18,697 copies, or an income of $130,879 over a period of 7 months. During the period from 26 June 1989 to 18 May 1990, CLC627 produced 21,863 copies, or an income of $153,041 over a period of 11 months. Figures have not been included for CLC337 as there is data for a limited period only, or for CLC507 as it was generally either stored at Canon's finance or at a warehouse. Even so, CLC507 produced in excess of 3,000 copies per month during the period from June to September 1990. The performance of the CLCs 224,203 and 242 as set out above, which produced well in excess of 4,000 copies per month each during the latter part of 1988, notwithstanding this was the period problems were being experienced because of the short life of the second version drum, together with evidence of Ivey referred to above of occasions when 7,000 copies were produced in a month.

(4) Absence of any significant difference between any assumption as to the true position (based on the representations) and the true position

This evidence relates to the applicants' conduct during the period between August 1988 and 1990 and subsequently.

No calculations were made by the applicants of the extent of any anticipated improvement in the performance of the copiers and their servicing requirements. Further, no calculations were made concerning the effect of this improvement on the income that would be earned by the business.

There is an absence of any reference to any of the representations or any expectation of improvement in the performance or service requirements of the copiers in any of the documents prepared by the applicants in relation to their business.

As has been seen, the applicants continued to acquire copiers by purchase or lease. Machines 381 and 443 were acquired in April 1989; machines 507, 512 and 627 in June 1989; and in October 1989 machine 571 as well as the offer to purchase machine 469. These dates were well after October 1988 when the case for the applicants refers to the receipt of the first assurances from the respondents concerning the improvements to the copiers and well after the Richardson letter.

When the applicants came to sign the guarantees for Canon Finance in April, May and June 1989 they did not seek some reassurance the machines would be fixed before they became personally liable under a guarantee.

Instant Colour did not respond to statements in letters from Canon to Imageland on 19 June 1989, 26 October 1989, 25 January 1990, 26 April 1990 or 29 May 1990 expressing the hope it continued to be satisfied with its copiers and the level of after sales service.

On 18 October 1989 Ferguson discussed the financial situation of the Instant Colour with other directors. He phoned and discussed it with Ivey who made a diary note. Despite the serious concerns of these directors, no mention is made of any concerns about the performance or service requirements of the copiers or of any of the representations. The meeting was not followed by any complaint to Canon of misrepresentation. On the contrary, Ivey
wrote the letter of 18 November 1989 to Canon concerning the joint venture subsequently entered into by Happy Jacks.

On 26 July 1990 Canon commenced an action against Instant Colour for recovery of $21,124 for goods sold and delivered. This did not produce any response or complaint from Instant Colour and judgment went by default.

When Ivey left Sydney in early October 1990 he took all the records to the dump. His evidence was that when he threw away his records of defective copies he did not think they would have any future use. Ferguson also destroyed his records when he vacated an office in West Perth some months before October 1990. There is an inconsistency between this conduct and reliance by the applicants on the alleged representations.

While complaints were made by the applicants concerning the performance of the machines, no complaints were made to Canon of any misrepresentation concerning the levels of servicing or the development of a drum to solve all the problems. Blandford testified that in the course of discussions with Ivey concerning Instant Colour's financial difficulties he did not attribute those difficulties to machine defects or copy quality. Furthermore, Ivey had not complained to him about any misrepresentations (as distinguished from complaints about service). There is evidence to similar effect from Heddle, Lagos, Furey and Houghton.

Adolphe subsequently became associated with Ivey as a consultant and then fellow director.

I certify this and the preceding 144 pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson.

Associate:

Date:

APPEARANCES

Counsel for the Applicant: Mr N Moshinsky QC and

Mr E J Szabo

Solicitors for the Applicant: Blair Dancon & Co

Counsel for the Respondent: Mr R Macaw QC and

Mr D J Martino

Solicitors for the Respondent: Clayton Utz

Date of Hearing: 7 March to 28 April 1995,

30 October to 23 November 1995 and 6 February 1996

Date of Judgment: 28 August 1996

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