CATCHWORDS

CONTRACT - whether contract made - whether some significant parts only of a single proposal can constitute an offer - whether proposal containing substantial analysis, commentary and suggestion can constitute an offer - whether exclusive distribution agreement can arise where apparent offer and acceptance each attach different meaning to apparent operative term "sales and marketing arm" - whether acceptance of apparent joint offer can give rise to several contract

FIDUCIARY DUTY - whether fiduciary duty arose where no contract - whether applicant was in a position of vulnerability vis a vis the respondents - whether vulnerability a touchstone of fiduciary duty or merely a characteristic of some of those to whom fiduciary duties are owed - whether ordinarily a distributor who buys goods and then sells them as principal will be under a fiduciary duty to the supplier

TRADE PRACTICES - Misleading and Deceptive Conduct - whether displaying similar garments with different and prominent name badges on the same clothes rack constituted misleading and deceptive conduct - whether responsibility can be attributed to distributor as a matter of inference - whether statements made by the respondent distributor in relation to being approached by a company to sell a competing product were misleading and deceptive in circumstances where the distributor failed to reveal its ownership of the company - whether applicants suffered loss as a result of misleading and deceptive statements - whether applicants would have continued to supply respondent but for the misleading and deceptive conduct - whether subsequent distribution difficulties a result of misleading and deceptive conduct

PASSING OFF - whether displaying similar garments with different and prominent name badges on the same clothes rack amounted to passing off - whether responsibility can be attributed to respondent as a matter of inference

TORT - Deceit - whether deceptive statements made by distributor were intended to be acted upon and were in fact acted upon

TORT - Injurious falsehood - whether letter sent by respondent to its customers was false and disparaging of applicants' business - whether malice - whether special damage

Trade Practices Act 1974 s 52, s 75B, s 53, s 87, s 82(1)

Trade Marks Act - 1995 s 7(4)

Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41

Parkdale Custombuilt Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191

Paragon Shoes Pty Ltd v Paragini Distributors (NSW) Pty Ltd (1988) 13 IPR 323

Seekers Nominees Ltd v Target Australia Pty Ltd (1995) 32 IPR 372

Morgan v Babcock and Wilcox Ltd (1929) 43 CLR 163

Martin v Osborne (1936) 55 CLR 367

Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514

Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118

Archer v Brown [1985] QB 401

Yorke v Lucas (1985) 158 CLR 661

Crocodile Marketing Ltd v Griffith Vintners Pty Ltd (1989) 12 ATPR 41‑000

Loudon v Ryder (No. 2) [1953] 1 Ch 423

C-SHIRT PTY LTD v BARNETT MARKETING AND MANAGEMENT PTY LTD & ORS

NG 357 of 1995

CORAM:       Lehane J

PLACE:          Sydney

DATE:            10 December 1996

IN THE FEDERAL COURT OF AUSTRALIA                               )

NEW SOUTH WALES DISTRICT REGISTRY                              )

GENERAL DIVISION                                                                    )             No. NG 357 of 1995

                      BETWEEN:          C-SHIRT PTY LTD

                                                     (A.C.N. 060 546 554)

                                                                                                                                        Applicant

                      AND:                     BARNETT MARKETING AND MANAGEMENT

                                                     PTY LTD

                                                     (A.C.N. 006 117 791)

                                                                                                                             First Respondent

                                                     NEIL BARNETT

                                                                                                                        Second Respondent

                                                     MARGARET BARNETT

                                                                                                                            Third Respondent

CORAM:     Lehane J

PLACE:        Sydney

DATE:          10 December 1996

                                                       MINUTE OF ORDERS

THE COURT ORDERS:

1.         The applicant bring in short minutes of the orders necessary to give effect to these reasons.

2.         Costs are reserved.

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

IN THE FEDERAL COURT OF AUSTRALIA                               )

NEW SOUTH WALES DISTRICT REGISTRY                              )

GENERAL DIVISION                                                                    )             No. NG 357 of 1995

                      BETWEEN:          C-SHIRT PTY LTD

                                                     (A.C.N. 060 546 554)

                                                                                                                                        Applicant

                      AND:                     BARNETT MARKETING AND MANAGEMENT

                                                     PTY LTD

                                                     (A.C.N. 006 117 791)

                                                                                                                             First Respondent

                                                     NEIL BARNETT

                                                                                                                        Second Respondent

                                                     MARGARET BARNETT

                                                                                                                            Third Respondent

CORAM:     Lehane J

PLACE:        Sydney

DATE:          10 December 1996

                                                  REASONS FOR JUDGMENT

LEHANE J:

General nature of proceedings

The applicant manufactures and sells clothing, principally for children, designed to give protection against the effects of ultra‑violet radiation from the sun.  The first respondent (a company of which the second and third respondents are directors) was between late 1992 and early 1995 a distributor of the applicant's products in a substantial territory which included Victoria and much of New South Wales: it will be necessary to examine in some detail the precise nature of the relationship between the parties, but in broad terms the arrangements involved the purchase of clothing by the first respondent from the applicant and its sale by the first respondent to retailers, principally pharmacies.

During the latter part of 1994 the first respondent made arrangements for the manufacture of clothing substantially similar to, and competitive with, the applicant's products.  The sale to retailers of the first respondent's "Alpha" range of products commenced in December 1994; hats produced by the first respondent had been sold to pharmacies somewhat earlier.  Again it will be necessary to examine the circumstances in considerably greater detail, but in my view it is not an unfair summary to say that the first respondent, acting through Mr Barnett, the second respondent, not only did not inform the applicant of its proposal to make and sell competing products (or the actuality of its doing so, when it happened) but also, when questions arose, misinformed the applicant about what it was doing.  In February 1995 the arrangements between the applicant and the first respondent came to an end when the first respondent "resigned".

The applicant seeks relief against the first respondent based on a number of causes of action which it claims arise from those circumstances; the causes of action include breach of contract, breach of fiduciary obligation, deceit, conduct in breach of s 52 of the Trade Practices Act 1974 and passing off.

This judgment is concerned with questions of liability only: on 22 November 1996 I ordered that the question of liability be tried separately from any question as to the quantum of damages or the taking of accounts.

Facts

(i)         Commencement of C‑shirt business

Mrs Wendy Franklin (now a director of the applicant) started what is now the applicant's business in 1990.  It arose, according to Mrs Franklin's evidence, from a conversation between Mrs Franklin and her sister the previous year about the possibility of arranging to manufacture and market sun protective clothing for children.  During 1990 Mrs Franklin obtained lycra material, had it tested for the degree of protection which it offered against the sun and had a shirt made from it for her son.  Her son used the shirt during the summer of 1990; Mrs Franklin's observation of the shirt in use suggested to her a number of modifications of its design.  She coined the name "C‑Shirt" for it; she ascertained by search at the Trade Marks Office that there was no registered mark incorporating that or a similar name; she also sketched a logo and coined the slogan, which formed part of it, "wet or dry I won't fry".

In about September 1991 she arranged for about 2,000 shirts to be manufactured in a range of colours.  She advertised them for sale by mail order and received numerous orders.  Later that year she arranged the manufacture of more shirts; she commenced selling through pharmacies in the Hunter Valley and on the North Coast and also in Sydney and on the Central Coast.  She added shorts, and later suits, to the range of clothing manufactured and sold.

It is clear on the evidence that the C‑Shirt business was conceived and begun by Mrs Franklin.  She has directed its operations, and made most decisions in relation to it, throughout its history.  Her husband, Mr David Franklin, is also a director of the applicant.  He has been involved in the business since its inception.  He described himself, in evidence, as a house husband and part time bookkeeper and certainly it is clear that his role in the business was a supporting one.  But his involvement with its financial aspects was substantial and, as will be seen, he participated significantly in dealings with the respondents.

(ii)        Introduction to respondents: distribution proposal

At some time before November 1992 Mrs Franklin had met Mr Robert Gunn, who was to become the distributor of C‑Shirt Products in Queensland.  In early November 1992 Mr Gunn introduced Mrs Franklin and her husband to the second respondent, Mr Neil Barnett.  Mr Barnett had a tertiary qualification in marketing and had held positions with a number of companies in the fields of marketing and product development.  The introduction took place, apparently by appointment, at Mr and Mrs Franklin's home near Maitland.  Mr Gunn and Mr Barnett presented the Franklins with a document described as "Proposal to Extend Distribution of C Shirts & C Shorts"; the Franklins proceeded to discuss that document with Messrs Gunn and Barnett during a meeting which lasted probably rather more than one and a half hours.

The proposal assumed considerable importance in the case and it is necessary to describe it in some detail.  Its essence was that Messrs Gunn and Barnett (or their respective companies) should be appointed as exclusive distributors of C‑Shirt products.  That is to say, they would buy stock from Mrs Franklin and resell it to retailers throughout
Australia and possibly overseas.  A number of detailed matters were dealt with.  For example, it was proposed that "head office representation" would be handled by Mr Gunn in Queensland and New South Wales and by Mr Barnett in Victoria, South Australia and Western Australia.  It was suggested that a firm pricing policy should be established and that "as an added incentive for us to build the brand" Messrs Gunn and Barnett should be able to purchase at discounted prices when sales exceeded $100,000, the discount becoming greater when sales exceeded higher targets.  It was suggested that Messrs Gunn and Barnett should be accorded "30 day terms on our purchases after an agreed period of time".  The proposal included a "market analysis" and suggestions as to the way in which the C‑Shirt brand and products should be "positioned", promoted, packaged and distributed.  While marketing and distribution were to be the responsibility of Messrs Gunn and Barnett, advertising, research and development and production would remain the responsibility of the Franklins.

The relationship contemplated by the proposal was to be a close one:

            It is therefore proposed that both Robert and myself become your sales and marketing arm.  To ensure commitment on our behalf we would wish to purchase the stock directly from you and carry the responsibility of sales representation at store and head office level, physical distribution, debt collection and possibly export planning and execution.

A purpose of the plan put forward by the proposal was to:

            maximise C Shirts distribution and making it available to all concerned parents and adults, ensure longevity of the brand and prevent copycat
brands from emerging to rob C Shirts of it's rightful place as market leader.

That sentiment was reinforced by the following comments under the heading "Major Players":

            It would appear that C Shirts and Stingray are the only brands to emerge to date however there is a great deal of attention being drawn to this category.  This would indicate that there is not a great deal of time left to establish the brand as the original and the best, comprehensively stocked in the retail outlets of Australia.

            There are too many cases where the original product has been left with a minor share after being out‑marketed by a newcomer.  Activite for example has only 2% market share after establishing the category in Australia in the first place.

It emerged during the discussion in November 1992 that the Franklins would not accept the proposal in whole; particularly, they were not prepared to concede overall control of marketing and distribution (they wished to maintain the distribution channels which they had already established) and volume discounts were not agreed upon.  Exactly what was said about other detailed aspects of the proposal is not clear.  At all events, after one further brief telephone conversation with Mr Barnett the Franklins wrote a letter dated 20 November 1992 addressed to the first respondent.  The letter was written on notepaper headed "C‑Shirt" the proprietor of which was stated to be Mrs Franklin.  It was as follows:

            Dear Neil and Robert,

            Further to our discussions earlier this month we are happy to appoint you as the Sales and Marketing arm of our C‑Shirt business.  We envisage that you will encompass the areas of Victoria, Western Australia, Queensland and Sydney.

            Yours sincerely

            David and Wendy Franklin

The letter was signed by both the Franklins.

(iii)       Development of the relationship between applicant and respondents; development of C‑Shirt business

Early in 1993 it became clear that the joint venture between Mr Gunn and the first respondent would not proceed.  The evidence does not make clear to what extent, if at all, C‑Shirt had been distributed by them before that time.  At all events, it was then arranged that Mr Gunn would distribute C‑Shirt products in Queensland and the first respondent in other places.  The evidence does not enable me to state with precision what arrangements were made, and when, as to the precise areas in which the first respondent was to distribute the products.  Certainly it was clear throughout that he was to distribute them in Victoria and in parts of New South Wales outside areas in which the Franklins already had established their own distribution arrangements.  In Sydney the distributor, between about March and June 1993, was a Dr Britton whom Mr Barnett had introduced to the Franklins.  From June 1993 the first respondent undertook distribution in Sydney. 
At least by mid 1993 the first respondent was also distributing C‑Shirt products in Western Australia.

The applicant was incorporated during 1993.  It proceeded to carry on the C‑Shirt business previously conducted by Mrs Franklin with assistance from her husband.  There is, however, no evidence of the transaction by which the business, or its property, was transferred to the applicant; particularly there is no evidence of a transaction by which there was an assignment or novation of any contractual rights against the first respondent or obligations to the first respondent.  Additionally, Mrs Franklin is registered as the owner of a number of trade marks relating to the applicant's products.  Her application for the first of those marks was filed in April 1991: it incorporates the expression "C Shirt", the logo and the slogan.  Additional marks relating to various products of the applicant and the material from which they are made are the subject of a series of registered trade marks, the  applications for which were filed at various times between April 1993 and November 1994.  As I have mentioned, Mrs Franklin is registered as the owner of all those marks: there is no evidence of an assignment of any of them to the applicant or of any other formal arrangement entitling the applicant to use them.

The C‑Shirt business flourished during 1993 and 1994.  Mrs Franklin's evidence is that its gross income grew by 1400% in the two years from June 1992 to June 1994.  Its gross income for the year ended 30 June 1994 exceeded $1,600,000; the gross income for the financial year ended 30 June 1995 (the year in which the applicant's relationship with the first respondent came to an end) was about $1,300,000.  Another measure of the success
of the business was its success in various business competitions: particularly, it was a finalist in the 1994 New South Wales Small Business of the Year Award and won the award for the best business achievement in New South Wales in 1994 by an enterprise with fewer than six employees.  Those successes resulted in a good deal of favourable publicity.  Mrs Franklin was successful also in arranging for the manufacture and distribution of C‑Shirt products, under licence, in a number of countries overseas.

At the same time, the first respondent achieved considerable success as a distributor of C‑Shirt products.  In each of the years ended 30 June 1994 and 30 June 1995 sales to the first respondent accounted for nearly half of the applicant's total sales.  Two aspects of the relationship between the applicant and the first respondent, and the principals of each, require comment.  One is that, at least until the latter stages of their relationship, it was a close one marked by very frequent communication, cooperation and some degree of give and take - for example in relation to trading terms, in relation to distribution in Sydney and, initially at any rate, in relation to responsibility for promotional and advertising expenses.  The evidence of the Franklins, which I have no reason to doubt, is that they regarded it as a relationship of mutual trust.  The other aspect is that there were matters, almost from the beginning, which gave rise to a degree of friction between the parties.

Some of the matters giving rise to that friction require brief mention, although in the end I do not think a great deal turns on any of them.  First, there was an issue about the supply of products to the Soul Pattinson chain of pharmacies.  That chain operates in New South Wales, principally in the Sydney area which from June 1993 was part of the first respondent's territory: thus, Soul Pattinson pharmacies in Sydney were among those to whom the first respondent would hope to sell see C‑Shirt products.  In March 1993 Mrs Franklin had made an arrangement with the Soul Pattinson group under which she would sell products directly to the group's central warehouse: individual pharmacies in the chain would have a choice, either to buy from the warehouse or to buy from the applicant's distributor.  The extent to which pharmacies in fact took supplies from the warehouse rather than from the first respondent was a source of repeated complaint by Mr Barnett: so much at least is not in controversy.  The applicant recognised the difficulty caused to the first respondent to the extent of agreeing to share advertising expenses which, in a meeting between Mr Barnett and Mr Franklin earlier in 1993, Mr Barnett had agreed that the first respondent would pay.  Secondly, there was the question of a formal contract, or security of tenure.  Possibly from late 1993, but certainly during 1994, the parties are in agreement that Mr Barnett on several occasions requested a formal contract.  He expressed concerns about the security of his position and the impossibility of selling any part of his business (such a sale was the subject of some discussion between the parties) without a binding agreement; he observed also that licensees and distributors overseas had formal contracts with the applicant whereas he had not.  The applicant's response was to the effect that the relationship between the parties was one of trust and that a formal contract was not a matter of urgency; in fact in late 1994 the applicant arranged for its solicitors to prepare a form of contract which was sent to the first respondent in December of that year; I shall return to that document later.  Thirdly, there were miscellaneous matters such as a concern over the supply of C‑Shirt products by the applicants to a children's wear shop near and directly competitive with a pharmacy
supplied by the first respondent.  Fourthly, in the closing stages of the relationship (perhaps as late as November 1994) the respondents were concerned about mail order sales by the applicant.  Finally, there appear to have been some difficulties over margins and trading terms.

(iv)       Competitive activities; resignation

Mr Barnett says, and Mrs Franklin agrees, that Mr Barnett suggested that the applicant produce a hat as part of its range of protective clothing.  The evidence does not make it entirely clear when the suggestion was first made, but it seems likely that it was made on more than one occasion during the first half of 1994.  Mrs Franklin's evidence is that she experienced some difficulty in producing a hat which she regarded as satisfactory.  By June 1994 Mr Barnett had decided that the first respondent would make its own hat.  His affidavit evidence is that he had a sample of that hat available to be shown to customers at the Melbourne Pharmacy Fair which took place in June 1994.  During that month Mr Barnett arranged with a company called Sunbuster that Sunbuster would manufacture hats from lycra material obtained by Mr Barnett from a company called Stretchtex.  The number of hats manufactured from the material ordered was between 18,000 and 20,000; the first deliveries, of about 9,000 in total, were made during September 1994.  The hat was called the Radicool Cover Hat.  The first respondent proceeded to offer the hats for sale to pharmacies.

On 27 September 1994 Mr Barnett sent to the Franklins, by fax, the following letter:

            Wendy/David,

            Damien has been approached by a company wishing to distribute lycra hats.  They have now approached me to distribute in my area.

            I have mentioned that I was not fussed by yours and did not feel comfortable about selling something I didn't like, especially since we have a policy with our customers of swapping items over if they don't sell.

            I do, however, like the hat that has been presented to me.  I am happy to show our customers both and allow them to choose.  Please send five samples finished legionnaires to me and I will forward to reps.

            Thanks

            Neil

The fax was handwritten and the second paragraph of the copies in evidence is not easy to read: the version of it as set out above is that given by Mr Barnett in cross‑examination.  "Damien" was Damien Lee, a commission agent employed by the first respondent.  The second paragraph appears to be a reference to discussions between Mr Barnett and Mrs Franklin in which Mr Barnett had been critical of sample hats which Mrs Franklin had provided.  At all events, the letter plainly was calculated to mislead the Franklins.  They would not have gathered from it any inkling of the truth, which was that the "company wishing to distribute lycra hats" was Mr Barnett's own company, that he had already received and was in the process of distributing several thousand of them and that several thousand more were already on order.  As it was, the fax elicited an immediate and strong reaction.  Mrs Franklin telephoned Mr Barnett upon receiving the fax; she made it
quite clear that she strongly objected to the first respondent or its representatives distributing the rival hat; she said that if it were sold by C‑Shirt's distributor, people would assume it was a product of C‑Shirt and that money spent by the applicant in advertising its own "C‑Hat" would, in effect, promote a competing product.  Mr Barnett said he would think about it overnight.

On the following day, 28 September 1994, Mr Barnett faxed the following letter to the Franklins:

            Wendy, David,

            I have this morning declined the offer of distributing the other hat.

            I would like to make a number of points however.

            I have obviously misread the amount of emphasis you have put on the hat.  Ever since I have started to distribute C Shirts I have been asking you for a hat.  We have even sent samples to you of hats as possibilities for a [the next word is illegible] with no response.  Now they are the most important thing to you.

            It obviously disappoints me how little you regard me as a distributor as evidenced by the speed with which you are prepared to dump me, the fact that although I have been asking for a contract for a long time distributors in other countries have them before me and the total lack of acknowledgment of mine and the other distributors efforts to enable you to win stardom.

            Neil

The paragraphs following the first are of little immediate materiality except that they illustrate the friction which had developed and some of its alleged causes.  The first paragraph, as Mr Barnett conceded in cross‑examination, was simply untrue and was calculated to reinforce the impression that the hats came from a source other than his own company.  Mrs Franklin sent a prompt and vigorous reply which concluded with the sentence:

            I would like you to clarify that Damien and Ewen [another representative of the first respondent] are not selling their hat with the range [i.e. the applicant's products].

The final item in this series of correspondence was a fax from Mr Barnett to Mrs Franklin, as follows:

            Wendy,

            Both Ewan & Damien have confirmed that only a handful of orders have been taken the delivery status of which is unknown.

            Damien is under the understanding the companys own rep has orders in hand.

            Again both Damien & Ewan confirm they will offer only C Shirts C Hats etc.

            Please send asap to Damien and 3 to me finished samples and we will see what can be done.

            Neil

That fax, like its predecessors, was significantly at variance with the truth.  Apparently, however, it provided sufficient assurance to persuade the Franklins to renew supplies to the first respondent, which they had suspended for some days during the controversy (that
no doubt explains the reference in the fax of 28 September to the Franklins' alleged preparedness to "dump me").  Because in fact the first respondent was continuing to distribute the Radicool hat, and because it was doing so to pharmacies to which it distributed the applicant's products, obviously it was only a matter of time before the applicant would discover the truth.  In November 1994 Mrs Franklin called at a pharmacy in Erina on her way to catch an overseas flight.  She saw a display of C‑Shirts hanging under a C‑Shirt "header card" and, lower in the display, a sign (Mrs Franklin deposes) "C‑Hats" under which were displayed not C‑Hats but Radicool Hats.  In Mrs Franklins's absence, Mr Franklin again stopped supplies to the first respondent and sent Mr Barnett by fax a strong protest.  In the fax he complained that the applicant had, through the distribution of the Radicool hats, lost a large number of orders and expressed the view that the material of which the Radicool hats were made was significantly less sun protective than the material which the applicant used.  The fax concluded.

            From our point of view with all the hard work we have put in claiming wet or dry 100+ this is the worst possible thing that could happen for our brand.  All of the hats still for sale need to be returned to the manufacturer as they do not meet his claims.  The responsibility for this also falls back on you as you are now aware of the hats failing.  When we can see evidence that this has happened we will be more than happy to supply you with stock again.  Please call me to discuss further.

Evidently that fax was written on the continuing assumption that, though distributed by persons connected with the first respondent, the Radicool hats were not the first respondent's own product.  When Mrs Franklin returned from overseas in mid‑November the problem had not been resolved.  Mrs Franklin spoke to Mr Barnett and told him that
he needed "to clear the situation up by sending to all pharmacies in Damien's area a letter stating that these hats were not from our company".  Mr Barnett faxed to Mrs Franklin a pro forma letter which he said he was sending out with all his accounts.  It read:

            Dear customer,

            This letter seeks to clarify the position with regard to "C‑Hats".  You may be aware that Damien has been selling a lycra legionnaires hat called Radicool Cover.  Some pharmacies have been under the misapprehension that these hats are C Hats manufactured by the same company as C‑Shirts.

            "C‑Hats" is a registered trade mark of C‑Shirts P/L and are SPF 100+ wet or dry and are available from Barnett Marketing at $10 wholesale with a recommended resale of $14.95.  These hats are supported with extensive television advertising.

            You will be contacted over the next two weeks with a view to detail you with these hats.  They have been a huge success in pharmacies everywhere.

            This letter also seeks to advise that Damien has chosen another career path and will no longer represent Barnett Marketing.

            If you have any queries, please do not hesitate to call.

Mr Barnett admitted in cross‑examination that the letter was not sent to customers.  On receipt of it, however, the applicant resumed supplies to the first respondent.

Mr Barnett's competitive plans by September 1994 extended beyond the production and distribution of Radicool hats.  He agreed in evidence that during that month he approached the Commonwealth Bank and sought an increased overdraft for the first respondent.  He agreed that he "probably" told the manager of the bank that he had
distribution rights in relation to C‑Shirt products, to which he had been introduced in 1993; that he had 400 clients; and that his sales up to and including September 1994 (presumably since 30 June) amounted to $350,000.  He agreed that he told the bank manager that he could develop a product called Alpha, which would be made of the same material as the C‑Shirt products, that he had discussed such a proposal with 50 of his largest clients and that the first respondent could produce the proposed Alpha products substantially more cheaply than it could acquire C‑Shirt products but could sell them at the same price, while offering a 15% discount for payment within seven days.  Mr Barnett agreed that he had told the bank manager that he was currently dependent upon the applicant for supply; that it was unlikely that the applicant would seek to replace the first respondent as distributor; but that it was questionable that that relationship would continue once it became known to the applicant that the first respondent was producing and distributing a directly competitive range of products.

In November 1994 Mr Barnett sent samples of lycra material, for testing for their sun protective qualities, to an organisation called AWTA Textile Testing.  Evidence of that was given both by Mr Barnett and by Mr Hampshire, a textile chemist employed by AWTA Textile Testing.  Mr Hampshire gave evidence in Melbourne by video conference.  In cross‑examination he was shown, from Sydney, a C‑Shirt garment and was asked to compare it with the lycra samples which Mr Barnett had supplied to him.  Having responded that all he could say was that it looked about the same colour as one of the samples, he added, after some further questions:

            No, all I can say is that if it's a knit then I've no reason to say that it could not be [the same material as one of the samples].

Then was a suggestion that at least some of the material sent to Mr Hampshire for testing was C‑Shirt material, C‑Tex: but there is no sufficient foundation in the evidence for any such conclusion.

The first respondent proceeded to arrange the manufacture of the Alpha range of products.  Mr Barnett's evidence is that the first respondent began to sell those products in December 1994.  That evidence accords with the sequence of events which I have described, is consistent with the timing of the Franklins' becoming aware of the Alpha products (a topic to which I shall return) and should, I think, be accepted despite some evidence called on behalf of the applicant which might be taken to suggest that the Alpha products were available in pharmacies some months earlier.  In the end it probably does not greatly matter, but I think that evidence must be regarded as mistaken and I do not think senior counsel for the applicant in the end suggested the contrary.

The evidence of the Franklins was that they did not become aware that the first respondent was responsible for manufacturing as well as distributing the Alpha products until some time after the relationship between the applicant and the first respondent came to an end.  Their evidence (which I see no reason to doubt) was that they first became aware of the existence of Alpha products in December 1994 when Mrs Franklin received an Alpha garment by post from Ms Susan Collett.  There was nothing on the garment or the tag attached to it to suggest a connection with Mr Barnett or his company, but an
address in Burwood East, Victoria, was printed at the bottom of the tag.  Then in January 1995 Mr Franklin received an anonymous phone call.  The caller said that Mr Barnett had been distributing a product of his own to pharmacies in Melbourne; that the product was "everywhere"; and that it had been on the market all season.  Mr Franklin relayed that information to Mrs Franklin.  Also in January 1995, Mrs Franklin made several trips to Melbourne.  During one of them she drove to the address at Burwood East, and found it to be an accountant's office: she asked what was their knowledge of the shirt she had been sent and was told that they had no knowledge of it.  At some later time she arranged for someone else to telephone the accountant's office and make a further inquiry; that inquiry yielded another telephone number which turned to out to be an office number of the first respondent.  It is not clear on the evidence when this happened.  Mrs Franklin said that the information she received from the caller suggested to her that Mr Barnett, or his company, was the manufacturer of the Alpha products; she maintained, however, that she was not aware of the connection until after the first respondent's resignation.  Her evidence is, in this respect, supported by evidence of Mr Liddy, which I shall discuss in more detail later in these reasons.  Both Mrs Franklin and Mr Franklin were cross‑examined at some length about the time they became aware that the respondents were behind the manufacture, as well as the sale, of Alpha products and counsel for the respondents submitted that I should find that they were well aware of the connection substantially before the first respondent's resignation.  But, given what had been a close and, on the whole, very satisfactory relationship, I do not find it particularly surprising that the Franklins did not accept until it became incontrovertible what in hindsight may appear to have been already obvious.  I accept their evidence.

Following one of her trips to Melbourne in January 1995 Mrs Franklin spoke to Mr Barnett and asked him whether he had been supplying pharmacies with another brand of product.  He replied, according to Mrs Franklin, that he had not.  It is not disputed that on the following day Mr Barnett said to her that he "did actually supply another product to a couple of the guys that time when you stopped supply on me".  When asked what the product was, he said "it is a product that the Unki guys do and I got a couple of shirts from them just to tied me over".  When asked what was the brand of the product he refused to say.  There followed, in February 1995, some correspondence and conversations, the detail of which is not material, between Mr and Mrs Franklin on the one hand and Mr Barnett, his wife and employees of the first respondent, on the other concerning outstanding accounts.

Before dealing with the resignation of the first respondent as distributor of the applicant's products, I should interpolate that solicitors acting for the applicant had, in late December 1994, sent to the first respondent a draft distribution agreement.  It contemplated an exclusive arrangement but also incorporated a number of conditions which had not previously been discussed between the parties: for example, there was a requirement in the draft that the first respondent establish, by way of security for its payment obligations, a letter of credit.  There was also included with the draft an account for the solicitors' costs, which it was suggested that the first respondent should pay.  Mr Barnett's evidence was that he "skimmed" the contract, found it in many respects objectionable (particularly in relation to the letter of credit) and saw no reason why he should pay the costs; he did
not, however, before the first respondent's resignation respond concerning the document either to the applicant or to the solicitors.

On 16 February 1995 Mr Barnett faxed the following letter to the applicants:

            To Wendy & David,

            Over the past several weeks I have spent a significant amount of time with my own business advisors, bank managers, accountants and lawyers and have detailed to them the circumstances of my company and our relationship to yourselves.

            Without exception each have expressed key and major concerns over a number of issues including Soul Pattinson, advertising expenditure to date, basic margin, your direct mail sales, the contract itself etc, etc.

            There can be no argument that I have worked to put C‑Shirts in an enviable market position.  I have spent over $50,000 of my own money advertising your brand and have had to continually cop repercussions of your actions in the market place with at the end of the day a questionable return.  The bottom line is that my business only has a value if there is a contract in place with you.  The contract as you have submitted is according to everyone of my group of advisors is (sic) so one sided that it would almost make it impossible to sell the business with it in place.  Therefore the conclusion that can only be reached is that after all this effort my business is of no value.

            I see that you give me no alternative but to end the distributorship as any of the key concerns I have expressed have been totally ignored.

            I am returning the long sleeve shirts together with a number of faulty items and about 50% of my stock holding together with a cheque for $15,000 as per attached documents.

            Neil Barnett

Mr Barnett in evidence admitted that he had not instructed lawyers; he had no business advisers other than his bank manager and the accountants whom he employed; and he had not consulted either his bank manager or his accountants about any of the matters referred to in the letter; consequently, neither had expressed "key and major concerns" over those matters or any view about the draft contract.

(v)        Events following resignation

Mr Barnett sent to pharmacies with which he dealt a letter dated 2 February 1995.  Despite the date it bears, Mr Barnett's evidence was that he did not send it out until some days after he dispatched the letter of 16 February to the Franklins.  Mr Barnett was cross‑examined on that evidence but he maintained its correctness, it is not otherwise challenged and I accept it.  Because the letter assumed some importance in submissions made on behalf of the applicant I shall, once again, set it out in full:

            Dear Customer

            As you may be aware, Barnett Marketing is undergoing several changes in direction designed to re‑instate a greater degree of control over our own destiny.

            Over the past several years we have been the distributors of "C Shirts", one of the first brands of sun protection clothing in the market.  As you are also aware either myself or others working on behalf of Barnett Marketing have worked hard to help build this category in Pharmacy.  Sure we have had our growing pains but the bottom line is that we have developed a good win win relationship with the great majority of our customers.

            This being our objective I have felt increasingly concerned that this is being undermined by the C Shirt people.  They have put undue pressure on our margin to the point where we are unable to provide a respectable mark up or the best of back up service required to maximise sales and profit for the pharmacy from this category.

            They have also been selling through non pharmacy outlets at different retails and wholesale prices in direct competition to pharmacy and via direct mail again at different retails.  Of greater concern was the supply direct by the C Shirt people to a children's wear shop located directly opposite one of our pharmacies.

            I could not stand behind this sort of behaviour and call it acceptable to either myself or my customers.

            As a result we have launched our own range of SPF 100+ shirts and suits designed to provide the absolute protection of an SPF 100+ wet or dry.  They are manufactured by a top quality manufacturer supplying products to marine emergency services etc.  "Alpha 100+" is available in all the bright colours to attract children and the highest SPF factor of 100+ wet or dry to give parents the confidence of total protection.

            Our first product, the Radicool Cover hats have been an outstanding success and the Alpha shirts have been accepted trouble free with many large pharmacies as being more up to date and a very saleable product.  References can happily be provided.

            Over the next two months we will be coming around to brief you on the specific plans and support we will be offering to you for the next season.  I'm certain that we will increase both your sales and profit.

            If you have any questions or comments please do not hesitate to contact me.

            Neil Barnett

On the applicant's side, the starting point is a "diagnostic review" commissioned by the applicant in November 1994, apparently with the aid of a government scheme for the assistance of small business, from a firm of consultants, Holyman Dart & Partners.  The review was conducted by an associate of that firm, Mr Anthony Liddy.  The review prepared by Mr Liddy is in evidence and he was cross‑examined at some length.  The purpose of the review was, as its description indicates, to examine the various aspects of the applicant's business and to suggest ways in which it might be improved or made more efficient.  It is unnecessary, I think, to refer to the review in detail.  Two matters may be noted.  The review suggested that the arrangements for manufacture of C‑Shirt products left a good deal to be desired, both as to cost and as to quality control.  Secondly, the review concluded that the use of distributors who in turn sold as principals to retail shops resulted in a lack of direct contact between the applicant and retailers which impeded, in circumstances of substantial and increasing competition, the maintenance and development of the retail market for the applicant's products; additionally, particularly in the case of the first respondent (given the size of its territory), the distributors were simply not in a position to provide the degree of service to retailers that a competitive market required.

Mr Liddy gave evidence relevant to the time at which the Franklins first became aware of the connection between Mr Barnett and the manufacture of the Alpha products.  First, he confirmed evidence of Mrs Franklin that when told of the phone call received by Mr Franklin in January about competitive products sold in Melbourne by Mr Barnett, Mr Liddy had commented to the effect that the information did not entirely surprise him: he explained this reaction by reference to what he described as a degree of evasiveness by Mr Barnett in answering questions which Mr Liddy put to him for the purposes of the review (Mr Liddy in fact had a discussion, following a standard form of questionnaire, with all the applicant's distributors).  The review bears a date, as part of a word processing reference, 15 March 1995.  It refers to the first respondent on the footing that it remains a distributor.  However, in a note following a reference to the first respondent's performance as a distributor the review says:

            We have discovered this distributor offering alternative products to this customer base, further reducing our success in this territory.

There is also, under a heading "competitor analysis" a reference to the Alpha brand as connected to the first respondent.  Mr Liddy's considered evidence as to the time during which the review was typed and completed was that "the first time we actually put down a table of contents was in February and off the top of my head I think it was about the 18th" and, as to the note about the first respondent offering alternative products, "that I put it in very close to this report being printed ... because otherwise I wouldn't put a note like this at the end of a page.  I would include it in the way the document reads."

That evidence is consistent with that given by the Franklins.

The next matter to mention is that there are in evidence copies of correspondence between solicitors for the parties shortly following the first respondent's resignation.  The correspondence was tendered by the respondents for the purpose of showing that certain of the claims now made by the applicant were not made by it at that stage.  For present purposes, it may be observed that a letter from solicitors for the applicant dated 24 February 1995 demurred in mild terms to "many of the matters raised in" Mr Barnett's letter of 16 February, accepted the first respondent's "termination of the distributorship arrangement", expressed the applicant's view that Mr Barnett's "recent behaviour has presented a clear indication that your commitment to their product had diminished", suggested that "the fine details of cleaning up" might be amicably resolved and asked that the respondents refrain from saying or doing anything which might injure or disadvantage
the applicant in the market place.  Two subsequent letters from solicitors acting on behalf of the applicant, one dated 3 March 1995 from a Victorian firm and the other dated 7 March 1995 from the New South Wales firm which had written the letter of 24 February, stated that the applicants had become aware, as the Victorian solicitors put it, that "whilst under this arrangement not only did you fail to actively promote their products but in fact represented to existing and potential customers both orally and by printed material that our clients' product was inferior to other merchandise which you were able to provide"; the letters alleged that this amounted to misleading or deceptive conduct.  It may be observed that the course of that correspondence is also consistent with the other evidence that the Franklins only became fully aware of the connection between the respondents and the competing Alpha range after the termination of the distributorship arrangement.

There is no doubt that the applicant encountered some difficulties following the termination of its relationship with the first respondent.  The justice of one of the principal conclusions in Mr Liddy's review was demonstrated: the applicant did not know which retailers, in the territory previously looked after by the first respondent, had bought the applicant's products.  Mr Liddy had sought a list of customers from Mr Barnett, as he had sought one from other distributors, for the purpose of the review but such a list was not provided.  Mr Franklin gave evidence, in an affidavit sworn on 7 September 1995, that whereas before resignation the first respondent supplied the applicant's products to approximately 100 pharmacies in Victoria, the applicant at the date of the affidavit supplied four only.  Mr Altman, whose company Altman Sales Pty Ltd was in March 1995 appointed the exclusive agent of the applicant in the New South Wales portion of
what had been the first respondent's territory, gave evidence that during the first six months of his agency he supplied only 30 or 40 pharmacies, a number which had gradually grown; by the time of the trial he was supplying about 100 pharmacies.  He attributed the slow start to a number of factors: Mr Barnett's own connections, increased competition from a number of sources and his own need to familiarise himself with the particular market.

(vi)       Matters said to be relevant to confusion between C‑Shirt and Alpha products

A number of specimens of both ranges of products are in evidence.  To the inexpert eye they look very similar in design, material and colours.  However, the C‑Shirt products bear on the front, prominently and unmistakably, the name, logo and slogan.  The Alpha products bear on the front, equally prominently, a stylised version of the word "Alpha" with the addition of "100+ wet or dry".

Secondly, there is evidence of the display, in a number of pharmacies, of Alpha products, in some cases with C‑Shirt products, on a stand under what is described as a C‑Shirt "header".  There is a sample of a C‑Shirt header in evidence: it is made of cardboard, designed apparently to be placed at the top of a rack of clothing; upon it are pictures of a number of people wearing C‑Shirt products on what is apparently a very hot day; and it carries, graphically, the message that the products confer "maximum protection against extreme UV radiation".  Mrs Franklin gave evidence that in April 1995 she saw, in a pharmacy at the Qantas terminal at Melbourne Airport, a stand on which were Alpha products (only) under a C‑Shirt header; Mr and Mrs Franklin gave evidence of a visit which they made to a pharmacy in Gordon probably in February 1995, where they saw Alpha products displayed under a C‑Shirt header.  Mr Altman deposed to occasions on which, in April 1995, he had seen Alpha products displayed under C‑Shirt headers in two pharmacies in the Australian Capital Territory; in oral evidence he said that as recently as November 1996 he had seen Alpha stock similarly displayed in a third pharmacy.  Mr Graeme Peter Hardy, formerly an employee of Altman Sales Pty Limited, gave evidence that he had discovered an Alpha shirt among C‑Shirts on a C‑Shirt display rack under a C‑Shirt header at a pharmacy in Cronulla: that, he said, occurred on 20 July 1995.  He deposed also to having noticed, on many occasions during visits to pharmacies, sun protective hats bearing the label "Radicool" on C‑Shirt stands and under C‑Shirt header cards.

There was then evidence from three witnesses called by the applicant.  Ms Jodie Staines gave affidavit evidence that in about July 1994 she bought, for her son, a C‑Shirt and a pair of C‑Shorts at a shop in Three Springs, Western Australia.  In her affidavit she said that she made the purchase in about July 1994; in oral evidence, she corrected that to December 1994.  Her evidence was that she kept the tag which was attached to the C‑Shirt by a T shaped plastic connector of the conventional sort; she produced what she claimed to be the tag; it was not a C‑Shirt tag but an Alpha tag.  She became concerned, after about six months, that the protective qualities of the clothing may have diminished and sent it to the address stated on the tag, the address in Burwood East, Victoria, to which I have already referred.  She said that it was returned to her from that address with a statement to the effect that that was not an address of C‑Shirt; she then got in touch
with Mrs Franklin and sent the garments and tag to her.  That evidence is somewhat curious in certain respects, particularly as to the suggestion that an Alpha tag was attached to a C‑Shirt garment and because the plastic connector on the tag is intact; that was explained by Ms Staines on the basis that although she would normally cut such a connector, in this case she must have pulled it off the garment.  The garment itself, however, shows no sign of having been damaged by such an exercise.  I do not think that the evidence leads anywhere in relation to any issue in the case; the proper course is simply to disregard it.  The other witnesses were Mrs Dorothy Beryl Miller and Mrs Kathleen Mary Gray each of whom bought an Alpha garment at Leckies Pharmacy at Hammondville in December 1994.  Each said that she went to the shop with the intention of buying a C‑Shirt.  Mrs Miller gave evidence that she was told that C‑Shirt had gone out of business and that Alpha had bought them out; hearing this, she bought an Alpha shirt.  Mrs Gray bought a shirt and said that she realised it was not a C‑Shirt only after she had taken it home and compared it with a C‑Shirt that she had purchased previously: she then noticed that the brand was different.

Finally, I should record the evidence of two experienced pharmacists, a Mr Gorman whose pharmacy is in suburban Melbourne and a Mr Corbett whose pharmacy is in suburban Sydney, each of whom formerly purchased C‑Shirt products from the first respondent and now purchases Alpha products.  Each was called by the respondents and gave evidence that he understood that the Alpha garments were Mr Barnett's own range of products and nothing to do with C‑Shirt; each gave evidence to the effect that the public has no particular "brand awareness" in relation to sun protective clothing.  Mr
Corbett, in oral evidence, said that he had no recollection of receiving Mr Barnett's "dear customer" letter dated 2 February 1995, said "I don't remember quite the antagonism that I read in that letter" and added that his practice is to throw such a letter, "together with about 100 a day", away.

The issues

The perhaps unusual course, which I have taken, of recounting the facts and evidence in considerable detail before isolating the issues with any precision reflects the course which the proceedings have taken.  They were commenced by an application in which the following three declarations were claimed:

            (1)        A DECLARATION that in respect of their involvement in marketing a range of consumer products known as the "C‑Shirt" range, including "C‑Shirt", "C‑Shorts",  "C‑Suit", "C‑Hat", "C‑Shirt Sport" and "C‑Tex" the First Respondent, in trade or commerce, has engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of s.52 Trade Practices Act 1974;

            (2)        A DECLARATION that the Second and Third Respondents, by reason of their being involved in or party to the said contravention within the meaning of s.75B of the said Act, are persons liable to the Applicant, in damages, or otherwise to compensate losses caused, in respect of the said contravening conduct;

            (3)        A DECLARATION that in marketing the "Alpha" range of consumer products in competition with the applicant's "C‑Shirt" range of products, the Respondents have wrongfully passed off their product as one manufactured and marketed by, or with the authority of, the Applicant;

In the light of the facts as I have recited them, the first declaration sought is obviously an oddity, at least unless one reads "in respect of" very widely.  The application proceeded to seek damages or compensation or, alternatively, an account of profits; an injunction restraining the respondents from further contraventions of the Trade Practices Act, in particular from "marketing the Alpha range, or any other range of products the get‑up of which is misleadingly similar to that of the "C‑Shirt" range"; and orders for the delivery up of allegedly infringing copies of the "C‑Shirt" products and the publication of a "corrective notice".  A notice of motion was filed seeking interlocutory relief by way of injunction and an order for delivery‑up.  Upon undertakings given by the respondents to the Court not to distribute goods for which an "SPF" rating was quoted which had not been verified by appropriate testing, and to use best endeavours to withdraw from the market any goods which they had distributed on which such claims were made without such verification, the motion for interlocutory relief apparently was not pressed.  The matter then proceeded towards a final hearing: directions were made for the filing of affidavits and lists of documents; numerous affidavits were filed; but there were no pleadings.

I appreciate that I have all the benefits of hindsight, but I cannot refrain from saying that, in my view, that was unfortunate.  It could not be said that the application, taken together with the affidavits filed, made at all clear what causes of action were relied on or what the issues between the parties really were.  Steps were taken, shortly before the trial, to define the issues; I shall return to those steps shortly.  The lack of prior definition, however, may I think have contributed to some prolongation of the trial; perhaps more
importantly, the failure to define what was really in issue between the parties at a relatively early stage must have rendered difficult to the point of impossibility any attempt to reach an acceptable settlement rather than subject two relatively small businesses to the disruption and expense of a two week trial, with prospects of a further hearing, which may take some days, on the question of damages or an account of profits.

On 22 October 1996 I made, by consent, directions for the filing of points of claim and points of defence; that was done and shortly before, and during, the trial particulars of the points of claim were provided.  It is, I think, desirable, to quote in full paragraphs 5 to 19 inclusive of the points of the claim:

            Claim in contract against the First Respondent

            5.         On or about 20 November 1992 the Applicant made an agreement with the First Respondent under which the First Respondent was to act as a distributor of C‑Shirt products to pharmacies and other retail outlets in Victoria and other places.

            6.         Among the express terms of the agreement were terms which:-

                        (a)        required the First Respondent to deal exclusively in C‑Shirt products during the currency of the agreement or alternatively required the First Respondent to not manufacture, distribute or otherwise market any product which competed with those products or which was of a like nature to them; and

                        (b)        required the First Respondent to devote its best efforts to distribute C‑Shirt products during the currency of the agreement; to build up the market for them in the territories in which it operated under the agreement; and to refrain from doing anything to hinder or prevent the fulfilment of that objective or which would or might have that effect.

            7.         Among the implied terms of the agreement were terms which:-

                        (a)        obliged the First Respondent to act in good faith toward the Applicant and, in particular, not to use, without the consent of the applicant, any information of a confidential nature imparted to it by the Applicant;

                        (b)        obliged the First Respondent to give business efficacy to the agreement;

                        (c)        prevented the First Respondent from using or copying the fabric, design, appearance, labels and any other material or means used in connection with the sale and/or promotion of C‑Shirt products ("the C‑Shirt get‑up") without the prior consent of the Applicant; and

                        (d)        required the First Respondent to give to the Applicant reasonable notice of its intention to terminate the agreement.

            8.         Pursuant to the agreement the First Respondent acted as the distributor of C‑Shirt products in Victoria and other territories in Australia during the period from late November 1992 to mid February 1995.

            9.         The (sic) breach of the express terms described in paragraph 6 above, the First Respondent during the currency of the agreement secretly developed, manufactured and marketed a range of identical or copy clothing ("Alpha Products") with the intention of appropriating for itself the whole or part of the Australian market for C‑Shirt products.

            10.       The (sic) breach of the implied term in paragraph 7 above, the First Respondent:-

                        (a)        did not act honestly in its dealing with the Applicant and used confidential information to market Alpha products instead of or in preference to C‑Shirt products;

                        (b)        used or copied the C‑Shirt get‑up without the prior consent of the Applicant; and

                        (c)        terminated the agreement without prior notice.

            11.       By reason of the First Respondent's said breaches, the Applicant has suffered loss and damage.

            Alternative claim in tort for deceit and mis‑representation against First, Second and Third Respondents

            12.       The Applicant repeats paragraphs 1 to 5 inclusive and 8 above.

            13.       During the currency of the agreement, the Second Respondent, by himself and as agent for the First and Third Respondents, represented to the Applicant from time to time that the First Respondent would not distribute or otherwise deal in any product which competed with C‑Shirt products.

            14.       The representation was false.

            15.       At the times of the making of the representation, the Second Respondent knew that the representation was false and the First and Third Respondents are to be imputed with that knowledge.

            16.       The Second Respondent made the representation with the intention of depriving the Applicant of knowledge of the conduct described in paragraphs 9 and 10 above; to prevent the Applicant from taking any steps to protect or reinforce its commercial position; and to secretly develop the capacity to market identical or copy products to those in the C‑Shirt range and thereby to appropriate the whole or part of the Australian market for those products.

            17.       Relying upon and induced by the representation, the Applicant continued to perform the agreement in ignorance of that strategy.

            18.       As a result of its reliance upon the representations, (sic) the Applicant suffered loss and damage.

            19.       Further, by their own wanton and fraudulent conduct in the circumstances described in paragraphs 13 to 18 above, the First, Second and Third Respondents have exercised a contumelious disregard for the rights of the Applicant for which it also claims exemplary and or aggravated compensatory damages.

All those paragraphs are denied by the respondents.

Thus at the forefront of the applicant's case, as it emerged from the points of claim, was a claim based on the existence and breach of a contract between the parties; Senior Counsel for the applicant made it clear in opening that the points of claim, in relation to the contract, were intended also to allege the existence of a relationship, arising from the contract and the circumstances in which it was made, in which the first respondent owed fiduciary duties to the applicant.  It will be observed that paragraph 10(a) of the points of claim refers to the use of confidential information; Senior Counsel for the applicant made it clear, however, that the applicant does not assert that there has been a breach of an obligation of confidence, at least separate from obligations under the alleged contract.  In relation to the claims based on deceit and misrepresentation, Senior Counsel for the applicant said in opening that the claims under this head were intended to include a claim based on the tort of injurious falsehood, arising from Mr Barnett's letter dated 2 February 1995.

The applicant's points of claim proceed to allege contraventions of sections 52 and 53 of the Trade Practices Act 1974 based on the misrepresentations alleged in relation to the claims in tort.  Again, it was made clear that the claims were intended to extend to an allegation that the respondents passed off "Alpha" products as if they were products of the applicant and analogous claims under the Trade Practices Act.  There is no express claim for infringement of a registered trade mark, although it may be noted that among the particulars given in relation to paragraphs 13 to 18 of the Points of Claim the applicants rely on "the fact that the Respondents have recklessly infringed the trade marks owned by the Applicant" and "either further particulars" delivered by the applicant suggest that
there is indeed a claim for infringement of registered trade marks.  Damages are claimed under s 82 of the Trade Practices Act and (presumably in the alternative) an account of profits by way of other relief under s 87.  Finally, it is claimed that the second and third respondents are liable on the footing that they induced, were knowingly concerned in and parties to or conspired with others to effect the first respondent's alleged contraventions of the Trade Practices Act.

Claim in Contract

The applicants' points of claim set out the express and implied terms of the contract alleged to exist between the applicant and the first respondent.  In response to a request that the applicant identify precisely the document/s and/or conversation/s in which all express terms of that agreement were contained, the applicant identified the proposal which Messrs Barnett and Gunn delivered to the Franklins in November 1992, the Franklins' letter to them dated 20 November 1992 ("we are happy to appoint you as the Sales and Marketing arm of our C‑Shirt business") and a number of items of correspondence, to most of which I have already referred, between the Franklins and Mr Barnett the earliest of which is a fax from Mr Barnett to Mrs Franklin dated 1 March 1994.  The conversations specified by the applicant as those on which it relies are a series of conversations between Mr Barnett and the Franklins, the earliest of which occurred in September 1993 and included a request by Mr Barnett for a formal contract and the second of which related to trade fairs in mid 1994; the rest of them took place in 1994 and related principally to the problem about the hats.

There are obvious difficulties with this.  One is that if, as Senior Counsel for the applicant clearly put it, a contract arose when on 20 November 1992 the Franklins appointed (presumably) Messrs Gunn and Barnett, or their companies, as sales and marketing arm, it is difficult to see in what sense the express terms of the contract could be contained in substantially later correspondence and conversations: there was no suggestion, and I do not think it could plausibly be suggested, that the correspondence or conversations effected a variation of a contract which had already arisen.  To the extent that the subsequent correspondence and conversations were relied on, the suggestion was, I think, that they were relevant either to the implication of terms or to the resolution of ambiguities in the express terms of the contract: I was referred, for example, to Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290.  Secondly, there is a difficulty about parties.  The proposal is perhaps, in this respect, somewhat ambiguous, but it must presumably be taken as a joint proposal of the first respondent and "R & M Business Services", apparently Mr Gunn's company.  The Franklins' letter of 20 November is addressed to the first respondent and the salutation is "Dear Neil and Robert"; but it is clear that the joint proposal did not proceed, and was accepted as not proceeding, because the arrangements between the first respondent and its partner collapsed.  Then - and this emerged as an issue at the end of the hearing - the applicant did not exist on 20 November 1992: the letter was signed by the Franklins not as directors of a company but, no doubt, on their own behalf.  Because that issue arose so late, I indicated that if I should form the view that anything crucial turned on it I would give the parties an opportunity, if they wished, to submit further argument on the point.  Senior Counsel's submissions on behalf of the applicant made it quite clear that the contract on which the
applicant relied was, as I have said, one arising from the acceptance, by the letter of 20 November 1992, of the proposal, or at least of parts of it.

Particular stress was placed on the words used in the letter ("we are happy to appoint you as the Sales and Marketing arm of our C‑Shirt business"), which picked up words used on page 6 of the proposal ("it is therefore proposed that both Robert and myself become your sales and marketing arm").  Stress was placed also on the sentence which immediately followed in the proposal (particularly the use of the word "commitment"):

            To ensure commitment on our behalf we would wish to purchase the stock directly from you and carry the responsibility of sales representation at store and head office level, physical distribution, debt collection and possibly export planning and execution.

Counsel emphasised that a significant aspect of the proposal, evident on page 6 but stated and restated throughout the document, was its avowed object to provide the Franklins with the means of protecting their brand effectively against competition.

Attractive as that approach may be, it encounters a number of formidable obstacles.  One of them is that it picks out a part, albeit a central part, of the proposal as a separate offer capable of acceptance so as to form a binding contract (it was not put that the letter amounted to a counter‑offer, accepted by the first respondent either by words or by conduct).  The proposal, however, contained a number of other elements, some of them of importance.  One was a "recommendation" that an agreed orderly marketing plan and
sales strategy be adopted "which would become the exclusive responsibility of both Gunn and Barnett to carry out on a national basis".  Another was that advertising was to remain the responsibility of the Franklins.  A third was that the proposal "would seek" what were described as volume discounts.  Two other aspects of the proposal suggest that it should not be regarded, even in whole, as an offer capable of becoming binding on acceptance.  One is that a great deal of it comprises analysis, commentary and suggestions as opposed to matter capable on acceptance of becoming binding contractual provisions; the other is the concluding paragraph of the proposal, the terms of which suggest a staged process rather than the immediate formation of a binding contract on the terms of the proposal:

            We would suggest that initially we be appointed to handle the main distribution channels on a national basis and that this occur as soon as mutual agreement is reached.

The evidence made it clear, as has been seen, that the discussion early in November between Messrs Barnett and Gunn, on the one hand, and the Franklins, on the other, made it clear that aspects of the proposal were unacceptable.  The evidence does not suggest, however, that the conversation resulted in the formulation of a more limited offer left "on the table" for consideration and possible acceptance. 

A second obstacle is that it is very difficult to give a clear meaning, in the context, to the expression "sales and marketing arm".  The proposal clearly contemplated an exclusive arrangement, in the sense that Messrs Barnett and Gunn (or their companies) were to take over the entire responsibility for marketing (and the development of a marketing plan) certainly nationally and possibly internationally.  The evidence on both sides is clear, however, that during the conversation following presentation of the proposal it was made plain that that would not happen: Mrs Franklin was not prepared to concede that total responsibility; particularly, she insisted on retaining the distribution channels which had already opened up.  "Sales and marketing arm" must, therefore, have meant in the letter something other than it meant in the proposal: but the evidence does not establish a consensus as to what that meaning was.

A third obstacle has already been mentioned: it is the severance of the joint venture between the first respondent and R & M Business Services.  It was suggested that I should treat the proposal, in effect, as a several proposal conveying, presumably, a separate offer by each proposer.  Certainly the proposal contemplated that particular matters would be the responsibility of one or other of them, but it was quite plainly presented as a joint proposal.  The proposal speaks of the combined forces of the two parties; it proposes "that both Robert and myself become your sales and marketing arm".  If the proposal were an offer, and if it had been accepted, no doubt it would have possible for the contract thus arising to have been novated so as to constitute each proposer separately the sales and marketing arm for a particular territory.  But the applicant does not suggest that there was in fact a novation and it is not easy to see anything in the evidence to suggest that one took place.

Counsel placed much reliance on Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41.  There are obvious points of similarity between that
case and this.  In Hospital Products a proposal was put by the defendant to the plaintiff, orally, but in terms which have some parallel in the terms of the proposal in this case.  In Hospital Products, however, there was undoubtedly a contract, arising from a letter signed by both parties, which in terms appointed the defendant the plaintiff's exclusive distributor in a defined territory, with effect from a stated date.  Certainly there was a need to consider, in the light of the surrounding circumstances - particularly, conversations that had occurred before the letter was signed by the parties - what the express terms of the contract were and what, if any, were its implied terms.  But the contractual foundation was secure: there was a contract, arising from an offer and its acceptance, between the plaintiff and the defendant.  Here, in my view, that foundation has not been established.  Plainly, of course, there could not have been, on or about 20 November 1992, a contract to which the applicant was a party because the applicant did not then exist and there is no suggestion that the letter was signed by the Franklins on behalf of a company to be formed.  But even if that were not so, for the reasons I have given, the evidence in my view does not support a conclusion that a contract, of the kind claimed by the applicant, came into existence on or about 20 November 1992.

That is not necessarily to say that there was no contract between the applicant and the first respondent other than the series of transactions of sale and purchase which undoubtedly took place between them.  Correspondence, conversations and a course of dealing between the parties might provide a basis for a conclusion that there was a more general concluded distributorship agreement between them but, no doubt advisedly, the applicant did not seek to make out a case based on such an agreement; and the evidence
suggests that the identification of such an agreement, and its terms, would not be an easy task.

It follows in my view that the applicant's claim based on contract fails; as I have concluded that the contract alleged does not exist between the applicant and the first respondent, questions of construction and the possible implication of terms do not arise.

Breach of fiduciary duty

The fiduciary duty of which the applicant gave particulars, and on which its counsel relied in submissions, was said to arise out of the agreement alleged by the applicant.  As I have found that the alleged agreement was not made, it cannot provide a foundation for a fiduciary obligation owed by the first respondent to the applicant.  But, of course, contract is not a necessary condition of the existence of fiduciary obligation.  The applicant relied on the following passage in the judgment of Mason J in Hospital Products at 96, 97:

            The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations; ... viz trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners.  The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interest of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense.  The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position.  The expressions "for", "on behalf of" and "in the interests of" signify that the fiduciary acts in a "representative" character in the exercise of his responsibility ...

While, with respect, that passage may be accepted as stating succinctly a number of matters, particularly the "critical feature", which are indicative of the existence of a fiduciary relationship, it must be remembered that his Honour's judgment was a dissenting one, in a case in which the majority held that no fiduciary duties arose out of an exclusive distributorship agreement construed as expressly prohibiting the distributor from competing with the supplier.  Counsel suggested that this was a stronger case than Hospital Products because of the vulnerability, as he described it, of the Franklins at the hands of a distant distributor who had it within his power to affect substantially, for good or ill, the goodwill and fortunes of the applicant's business.  I do not think that it is borne out by the evidence: particularly, the course of dealing between the parties suggests no subservience of the Franklins to Mr Barnett or any substantial disparity, to the detriment of the Franklins, in their respective bargaining powers.  I do not think that there is any identifiable sense in which the applicant was vulnerable to the respondents to a greater extent than the plaintiff was to the defendant in Hospital Products.  In any event, I do not think that in Australian law "vulnerability", though it may be a characteristic of some of those to whom fiduciary duties are owed, is the touchstone of fiduciary obligation: the fundamental question is for what purpose, and for the promotion of whose interests, are powers held?  In the case of a distributorship where the distributor is one who buys goods and then sells them as principal, on his own terms, the answer will not ordinarily be that the rights or powers of the distributor are to be exercised in the interests of the supplier or any joint interest.  That is clearly the basis on which the decision in Hospital Products proceeds; and see P D Finn, "The Fiduciary Principle" in Youdan, ed, Equity,
Fiduciaries and Trusts 1989 at 31‑35; J Glover, Commercial Equity - Fiduciary Relationships 1995 at 56‑58.

For those reasons in my view the applicant's case based on fiduciary obligation fails also.

Trade mark infringement; passing off; analogous claims under Trade Practices Act

There are two quite distinct claims under this head.  One is that the Alpha garments are to be regarded as close copies of the C‑Shirt garments; the resemblance, so it is said, is so close that people seeing an Alpha garment displayed are likely to be misled into thinking that it is a C‑Shirt garment.  Thus offering the Alpha garments for sale amounts to misleading or deceptive conduct in breach of s 52 of the Trade Practices Act and also to passing off at general law.  But the evidence of actual confusion is slight, to say the least.  I have already indicated that I do not think that any weight can be placed, for this purpose, on Ms Staines' evidence; Mrs Miller realised that what she was buying was an Alpha shirt not a C‑Shirt; certainly her evidence was that she was informed (wrongly) by someone in the pharmacy that Alpha had bought out C‑Shirt but there is no evidence connecting the respondents to any such statement.  Mrs Gray's evidence was that she thought that the shirt she bought, at the time she bought it, was a C‑Shirt but realised that it was not when she took it home and compared it with a C‑Shirt which she had bought previously.

It might well be difficult, even for one who is familiar with garments of the sort with which this case is concerned, to distinguish between C‑Shirt products and Alpha products,
or, for that matter, other products in the same category, viewing them, on a rack, from the side.  As soon as one looks at the front of the garments, however, the distinction between Alpha product and the C‑Shirt product is obvious: the name in each case is prominently displayed.  The case, in this respect, is a fortiori Parkdale Custombuilt Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191.  The principle for which Parkdale stands is applicable to passing off as well as to s 52 of the Trade Practices Act: see particularly per Brennan J at 219‑224, especially at 223.  There is here no similarity of product names such as their was in Paragon Shoes Pty Ltd v Paragini Distributors (NSW) Pty Ltd (1988) 13 IPR 323; see also Seekers Nominees Ltd v Target Australia Pty Ltd (1995) 32 IPR 372.  There was a suggestion that this is a case of deceptively similar "get‑up"; but, as Brennan J points out in the passage in Parkdale to which I have referred, there is a distinction between similarity of "get‑up" and similarity of the goods themselves; as was Parkdale, this is a case in the latter category.

The other of the two claims is based on the evidence as to the display of Alpha products, in some cases alone in others with C‑Shirt products, on a stand under a C‑Shirt header card.  The particular header card in evidence displays one of the applicant's registered trade marks; I think I may safely infer for present purposes that that was a common characteristic of the applicant's header cards.  There can, I think, be little doubt that the display of B's goods on a stand bearing a notice to the effect that the goods displayed on the stand are those of A, and bearing A's trade mark, may be a passing‑off, may (assuming the goods to be in the same class as those for which the mark is registered) be an infringement of a registered mark - on the footing that the mark is used in relation to
goods within the meaning of subs 7(4) of the Trade Marks Act 1995 - and may also be an infringement of the Trade Practices Act: I do not know of any authority specifically dealing with such a case, but see Lahore, Garnsey, Dwyer, Dufty and Covell, Patents Designs & Trade Marks Law, 1994 at 266.  Whether, if there were evidence that any of the respondents was responsible for any of the displays, the evidence of the particular displays in this case would be sufficient to establish any of those wrongs on the part of that respondent, I need not consider further because the difficulty facing the applicant here is in the attribution to any of the respondents of responsibility for what was done.

Certainly there is evidence that Mr Barnett supplied some at least of the display stands and header cards, but he did so apparently while he was distributing C‑Shirt products.  It will be recalled that the evidence revealed a number of sightings of displays of this sort in the months immediately following the termination of the relationship between the applicant and the first respondent and one much more recent sighting.  There was no direct evidence that any of the respondents had caused or authorised what was done.  It was put to me, however, that I should find that the displays were authorised by Mr Barnett on behalf of the first respondent by a process of inference, on the footing that the number of instances revealed by the evidence should not be regarded as mere coincidences but must be taken to point to deliberate action on the part of the respondents.  Reliance was placed particularly two well known decisions of the Hight Court, Morgan v Babcock and Wilcox Ltd (1929) 43 CLR 163 and Martin v Osborne (1936) 55 CLR 367.

Morgan involved a question whether a bribe had been paid, contrary to the Secret Commissions Prohibition Act 1919 (NSW) in order to obtain the acceptance of a tender.  A question in the case was whether, in the absence of direct connecting evidence, a payment made by a company to a particular account resulted from the receipt by its managing director of a letter, from an attorney of the company, recommending that that sum of money be paid to that account in order to achieve acceptance of the tender.  In their joint judgment, at 173, Knox CJ and Dixon J said this:

            An examination of hypotheses logically consistent with proved facts is the received method of testing their sufficiency to establish the conclusion.  In the end, however, the reasonableness or the probability of the occurrence of such hypotheses determines their admissibility, and when coincidence of fact and concurrence of time are relied upon, the sufficiency of the circumstances must inevitably be judged by considering whether general human experience would be contradicted, if the proved facts were unaccompanied by the fact sought to be proved.  In our opinion it would so astonishing if the crediting of [the amount of the bribe plus a sum for expenses] to [the particular account] were not the result of [the managing director] receiving the letter which counselled him to pay that sum to that account, that, in the absence of further evidence, it may be inferred that [the managing director] caused the credit to be made.

In Martin v Osborne the defendant was charged with driving a commercial passenger vehicle without the licence required under the Transport Regulation Act 1933 (Vic).  An element of the offence was the use of a vehicle for the purpose of carrying passengers for reward.  There was no doubt that the defendant had used a vehicle for the purpose of carrying passengers; but there was no direct evidence that any passenger had paid for the carriage.  The facts were, however, that the vehicle concerned had been observed standing at a point from which the defendant's brother, who had a licence for his vehicle,
carried, and was advertised as carrying, passengers for reward from Ballarat to Melbourne.  Not only was the defendant's vehicle seen there but a number of passengers were seen in it, luggage was seen to be placed in it and in particular "a lady with a suit case ... alighted from a passing bus and the defendant took her suit case to the car, in which he gave her a seat".  Over succeeding days the car was observed picking up passengers and luggage from various points and being driven between Melbourne and Ballarat.  It was held that in those circumstances carriage for reward could be inferred.  In that case, of course, as in Morgan, the question was whether the commission of an offence had been sufficiently proved.  Dixon J said, at 375:

            If an issue is to be proved by circumstantial evidence, facts subsidiary to or connected with the main fact must be established from which the conclusion follows as a rational inference.  In the inculpation of an accused person the evidentiary circumstances must bear no other reasonable explanation.  This means that, according to the ordinary course of human affairs, the degree of probability that the occurrence of the facts proved would be accompanied by the occurrence of the fact to be proved is so high that the contrary cannot reasonably be supposed ... But the class of acts and occurrences that may be considered includes circumstances whose relation to the fact in issue consists in the probability, or increased probability, judged rationally upon common experience, that they would not be found unless the fact to be proved also existed.

In this case, of course, it is according to the civil rather than the criminal standard that the applicant is required to establish the facts necessary to support its cause of action.  Nevertheless the two authorities make it clear, in my view, that the course I was invited to take should be embarked upon only with caution.  I am unable to be satisfied, according to the civil standard, that the proved displays are to be explained by an authority emanating from the respondents.  In saying that, I do not overlook the answers
given by Mr Barnett in cross‑examination on this topic; none amounted to an admission or provided, in my view, a sufficient foundation for the inference I was asked to draw.  Given, particularly, the number of pharmacies with which the respondents dealt, it does not seem to me at all surprising that, in the period following the time when the respondents ceased distributing C‑Shirt products and started to distribute Alpha products, a degree of inadvertence or carelessness may have occurred in pharmacies without any prompting, or even knowledge, on the part of the respondents.  Certainly I do not think that the one more recent sighting - which apparently occurred either during or shortly before the hearing - should (without any direct evidence) be attributed to the respondents.

My conclusion, accordingly, is that this aspect of the applicant's claim fails also.

Misleading or deceptive conduct; deceit

I shall deal with the statutory cause of action first.  It arises under subs 82(1) of the Trade Practices Act.  The relevant effect of that subsection, for present purposes, is that it entitles a person who suffers loss or damage by conduct of another person, done in contravention of a provision of Part V, to recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.  The provision of Part V in question here is, of course, s 52 which, in subs (1), provides that a "corporation" (remains for the present purposes a trading corporation) shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.  It was suggested also that s 53 might be relevant: given the conclusions to
which I have already come, I do not think there is any basis in the evidence for a claim that the first respondent has contravened that section.

The critical period for this purpose began in September 1994 and ended at the time of the first respondent's "resignation".  During that period Mr Barnett made a number of false statements to the Franklins.  There can be no doubt, in my view, that his statements are to be attributed to the first respondent (the contrary was not suggested) nor can there be any doubt that they were made to the Franklins as directors of the applicant.  Although the points of defence deny that the first respondent is a trading corporation that denial was, properly, withdrawn by counsel for the respondents: clearly the first respondent is a trading corporation; and equally clearly the statements were made in trade or commerce.

I have already set out the evidence relating to the correspondence and conversations Mr Barnett's part in which constitutes, principally, the conduct relied on.  Before returning to that, however, I should mention that Mrs Franklin gave affidavit evidence that in September 1993 Mr Barnett said, in response to Mrs Franklin's comment that she "had no security over him and that he could go and sell another brand into all the pharmacies that had been set up with my product" Mr Barnett replied "I hope you don't think that I would do that".  Mr Barnett denied that conversation and it received no attention in cross‑examination.  It is not appropriate, I think, to find as a fact that Mr Barnett made the remark attributed to him.  In a somewhat different context Mrs Franklin gave evidence of a conversation with Mr Barnett at a trade fair in Sydney in mid 1994 during which, according to Mrs Franklin, Mr Barnett said, referring to former
employees of another organisation who now competed with that organisation, that he would not do that to Mrs Franklin.  Again, Mr Barnett denied that conversation and again it was passed over in cross‑examination.  It is, however, worth noting that earlier in 1994 (but precisely when is not clear) Mr Barnett sent Mrs Franklin a fax in which, in a paragraph dealing with the then forthcoming Sydney Trade Fair, he said:

            By the sound of it I will be the only one in need of space at the T. Fair.  If this is the case then I would like to pay for the whole lot and have the option of offering another non competing (obviously) product range.  Please discuss.

In context, however, the statement no doubt relates only to a possible display of another range of products, with the C‑Shirt products, on a stand at the fair.

The statements during and following the hat controversies are of a different order.  Commencing on 27 September 1994 Mr Barnett made, in writing and orally, a series of statements which were misleading and deceptive and, in several respects, clearly (as Mr Barnett now admits) false.  In the fax of 27 September the sentence "Damien has been approached by a company wishing to distribute lycra hats" was at best misleading.  The following sentence, "they have now approached me to distribute in my area", was false.  In the fax of the following day the statement "I have this morning declined the offer of distributing the other hat" was false.  Again, what I have referred to as the final item in that series of correspondence contains a series of statements which were (as is now admitted) false.  The correspondence and conversations in November 1994 concluded
with a letter which Mr Barnett said he was sending out to all the retailers with whom he dealt.  That statement was false.  In January 1995 Mr Barnett made statements about the Alpha product which were false; finally, although it probably in the result makes little difference, the letter of "resignation" dated 16 February 1995 includes a series of false statements.

There is no room for doubt that, commencing on 27 September 1994, both Mr Barnett and (through him) the first respondent engaged in conduct which was misleading and deceptive.  The next question is, did the applicant suffer loss "by" that conduct?

In my view the evidence establishes that the applicant acted, on the faith of certain at least of Mr Barnett's statements, in a way in which it would not have otherwise have acted.  The action is characterised in the points of claim as continued performance of the contract between the applicant and the first respondent.  In the light of my findings on the contractual claim, the actions of the applicant cannot be so characterised, but it is not to be limited, in my view, to that formulation.  The applicant regarded the distribution of the Radicool hat so seriously that it ceased supply of its own products to the first respondent, at the end of September, until the matter was resolved.  It was  only upon receipt of assurances (quite explicitly sought) that the first respondent and its representatives would distribute only C‑Hats that supply was resumed.  It is, I think, an obvious inference that had the Franklins known the truth - particularly, had they known that not only had the first respondent and its representatives distributed the Radicool hat but that the first respondent had itself arranged for the manufacture of several thousand
hats, supply would not have been resumed.  The same conclusion should be reached in relation to the episode in November.  The applicant stopped supply and made it clear that supply would not be resumed until assurances were received.  False assurances were given; and supply was resumed.

There can be little doubt why Mr Barnett thought it necessary to deceive the Franklins.  He had told his bank manager that while he had no reason to doubt the stability of his current source of supply, matters might well be different if the supplier knew of his competitive intentions.  It will be recalled that Mr Barnett's conversations with the bank manager occurred in September and that in that month his plans for the manufacture and sale of the Alpha products were being implemented.  It is not difficult - and in my view it is appropriate - to conclude that Mr Barnett thought it preferable, if he could, to maintain his business of distributing C‑Shirt products until he was in a position to commence distributing the Alpha products and consolidate the market for those products.

However that may be, the next question is whether the applicant has suffered loss "by" the misleading or deceptive conduct.  It was put to me strongly that loss had not been demonstrated.  It was said, and truly, that the first respondent's relative share of total C‑Shirt products sold increased slightly during his last year as a distributor of those products; it was put also that any difficulties which the applicant may have suffered following the first respondent's "resignation" was not a consequence of any misleading or deceptive conduct on the part of the respondents but rather a result of the way in which the applicant had chosen to arrange for the distribution of its products: a way which was criticised by Mr Liddy, the correctness of the criticism being demonstrated by what happened.  It was suggested also that the Franklins must have known, significantly before mid February 1995, that Mr Barnett was actively competing with them and they must therefore be taken to have refrained from acting on that knowledge deliberately and for their own business reasons.  It was put also that, in any event, the most that had been established was potential or likely damage rather than actual loss or damage incurred: I was referred to Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514.

On this aspect of the matter the applicant is in my view entitled to succeed.  It is true that the applicant, as I have found, has not established that the first respondent was under a contractual or equitable duty not to compete with the applicant or to prefer to its own interest any interest of the applicant.  It may, accordingly, be accepted for present purposes that the respondents had no duty to inform the applicant of their competitive intention or the actuality of their competitive actions.  Indeed, it is not entirely easy to see why Mr Barnett decided to provoke the initial confrontation by his fax of 27 September 1994.  Whatever the reason, he did so; it produced an immediate and strong protest and cessation of supply; and he was able to obtain the renewal of supply only by giving assurances to the effect that he had abandoned any competitive plans in relation to hats.  The events of late September could hardly have left any doubt as to the reaction or likely response of the applicant to competitive activity on the part of the respondents, and the events of November re‑emphasised what had already been made clear.  I cannot accept that, if the applicant had not been misled, it would simply have resumed supply
regardless.  Accordingly, it is unnecessary to consider further the effect of later misrepresentations except to say that the respondent did not take advantage of any opportunity for correction: instead, he persisted in the deception.

That leads to the question of loss.  What actually happened was that the first respondent was able to continue in the market as a C‑Shirt distributor until its own rival business was firmly established with the pharmacists with whom it dealt.  I think it is proper to infer that if the first respondent had not had that opportunity the difficulties which the applicant later faced in seeking to re‑establish its products with those pharmacists would have been significantly reduced.  The first respondent, without a full range of products immediately available, would have been a considerably less formidable competitor than it was at the time when it chose to "resign".  Obviously the applicant would not have had the benefit of the sales actually made by the first respondent after the end of September; but it would have been able, perhaps through other distribution arrangements, to continue to sell its products in circumstances where it was not faced with immediate challenge in the market by a former distributor and with a full range of competitive products.

There remains the argument based on Wardley.  In my view that argument should not be accepted.  The applicant's loss has not yet, of course, been quantified; but to the extent that it can be quantified, it is an actual loss already suffered not merely a potential or likely loss.  This is an entirely different case from one in which, for example, an agreement has been entered into in reliance on misleading conduct but the consequences of the agreement, in terms of actual detriment or benefit, are yet to be ascertained.

The evidence does not establish precisely the date of the concluding item in the September correspondence or the precise date on which supply to the first respondent was resumed.  It appears, however, that those events happened by 30 September 1994.  For the purpose of quantifying damages, I think 30 September 1994 should be taken as the date on which the applicant acted in reliance on the first respondent's misleading or deceptive conduct.

On that footing, the applicant succeeds on this aspect of its claim.

It succeeds similarly, and on the same basis, in relation to its claim in deceit.  The September representations clearly include what on any view are representations of fact,  in addition, perhaps, to some which are of a merely promissory kind.  It is clear from Mr Barnett's evidence that he, and therefore the first respondent, knew them to be false.  I have found that they were intended to be acted upon and were acted upon by the applicant to its detriment.  The damages to which the applicant is entitled under this head are, I think, to be ascertained on precisely the same basis as are the damages to which it is entitled under s 82.  In other words, they are the same damages.  It was suggested that the applicant should have exemplary damages as well but, beyond a brief reference to Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118, an argument to that effect was not developed.  It is not by any means clear whether, or to what extent, exemplary damages are available in an action in deceit: see, e.g., Archer v Brown [1985] QB 401.  Clearly the mere fact that it is an action in deceit, and that deceit is fraud, will not suffice.  That being so, I can see nothing in the circumstances of this case calling for
damages beyond those necessary to compensate the applicant for its loss resulting from the misrepresentations.

Account of profits?

It was suggested that an order for an account of profits might be made, as an alternative to damages, under s 87 of the Trade Practices Act.  Whether or not such an order may in some circumstances be made under s 87, I do not think it is appropriate in this case.  An order for an account of profits is not among the particular orders referred to in subs 87(2); more importantly, the purpose of an order under s 87, as stated particularly in subs (1A), is to compensate for, or to reduce, the loss or damage resulting from a contravention.  That is, of course, not the function of an order for an account of profits.  In a case such as this, in my view, damages under s 82 are the appropriate remedy.

Claims against second and third respondents

The relevant claims are those in deceit and for misleading or deceptive conduct under the Trade Practices Act.  As to the claim in deceit, there is no evidence on the basis of which any liability can be attributed to the third respondent.  Clearly Mr Barnett, the second respondent, is liable to the same extent as is the first respondent: all the relevant representations were made by him.

Similarly conclusions follow under s 75B of the Trade Practices Act.  Plainly Mr Barnett was knowingly concerned in and a party to the contraventions; he is liable to the same extent as is the first respondent.

Once again, there is no evidence which in any way directly indicates a connection between the third respondent, Mrs Barnett, and the representations.  It was put that she should, nevertheless, as a director of the first respondent and one who had, on the evidence, played at least some part in its affairs, be regarded as a person involved in the contraventions by the first respondent of s 52.  In my view, however, in the absence of any evidence to Mrs Barnett's knowledge of any of the material matters, that is conclusion which should not be drawn: Yorke v Lucas (1985) 158 CLR 661; Crocodile Marketing Ltd v Griffith Vintners Pty Ltd (1989) 12 ATPR 41‑000.

"Injurious falsehood"

I have mentioned that it was suggested that the applicants were entitled to relief on this basis.  The suggestion appeared to be based principally on the letter dated 2 February 1995 to the first respondent's customers, which appears to have been sent out after the first respondent's "resignation".  I do not think that such a claim is made out.  It is not entirely clear that there are statements in the letter which are both false and disparaging of the business of the applicant.  Secondly, it is not established that the element of "malice" is made out: see, for example, Loudon v Ryder (No. 2) [1953] 1 Ch 423.  Finally, proof of special damage is required, and there is no evidence of loss flowing from the publication of the letter.

Conclusion

In the result, on the question of liability the applicant succeeds against the first and second respondents, to the extent I have indicated, in its claims based on deceit and,
under the Trade Practices Act, based on misleading or deceptive conduct.  The question of damages, of course, remains to be dealt with.  If they cannot be agreed then the matter will have to be relisted for the taking of evidence and submissions on damages.  It is appropriate in the circumstances to reserve the question of costs.  I direct the applicant to bring in short minutes of the orders necessary to give effect to these reasons.

                                                     I certify that this and the preceding 58 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.

                                                     Associate: 

                                                     Dated: 10 December 1996

Heard:                                          4-8 and 11-13 November 1996

Place:                                            Sydney

Decision:                                       10 December 1996

Appearances:Mr R W R Parker QC with Mr M A Bradford of counsel instructed by Davidsons Solicitors appeared for the applicant.

                                                     Mr C Golvan of counsel instructed by Michael Kraus and Associates appeared for the respondents.