FEDERAL COURT OF AUSTRALIA

Centurion Roller Shutters Pty Ltd v Automatic Technology (Australia) Pty Ltd [1999] FCA 1118

PRACTICE AND PROCEDURE  - survey evidence – proposed survey questionnaire – compliance with Practice Note No 11 – purpose of Practice Note No 11 – no ruling on questions of admissibility – observations on questions of weight and concerns the Court may have – specific objections to questions and related issues adjourned pending completion of particulars and discovery.

Trade Practices Act 1974 (Cth)

Fair Trading Act 1987 (WA)

CENTURION ROLLER SHUTTERS PTY LTD (ACN 009 203 910) v AUTOMATIC TECHNOLOGY (AUSTRALIA) PTY LTD (ACN 007 125 368), RAE LEIVENZON, SIMON LEIVENZON and JACK LEIVENZON

AUTOMATIC TECHNOLOGY (AUSTRALIA) PTY LTD (ACN 007 125 368) v CENTURION ROLLER SHUTTERS PTY LTD (ACN 009 203 910)

WG179 of 1998

FRENCH J

16 AUGUST 1999

PERTH

THE COURT ORDERS THAT:

On the Applicant’s motion filed 3 August 1999:

1.         The Respondent to provide on or before 3 September 1999 particulars of any objection it has to the questions proposed in the Applicant’s draft survey questionnaire.

2.         The parties are at liberty to raise the question of the form of the survey questionnaire and any further issues going to methodology at the case management conference to be held on 6 September 1999.

3.         The costs of the Applicant’s motion are reserved.

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

REASONS FOR DECISION ON MOTION IN RELATION TO SURVEY EVIDENCE

1                     Centurion Roller Shutters Pty Ltd (Centurion), a manufacturer and retailer of mechanised garage doors, sues one of its suppliers, Automatic Technology (Australia) Pty Ltd (ATA).  The action arises out of the supply of allegedly defective garage door opener systems, including hand held FM radio transmitters and mechanised tilt/sectional door openers.  Pre-contractual representations by ATA are said to have been false and to have constituted misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (WA).  The proceedings were commenced on 9 December 1998.  Interlocutory directions have been given including directions for the provision of particulars and discovery which, in relation to issues of confidentiality, were the subject of a ruling published on 11 June 1999. 

2                     On 3 August 1999 Centurion filed a motion seeking an order for leave to adduce survey evidence at trial arising out of a survey questionnaire annexed to an affidavit which was filed with the motion.  Such other directions as the Court might think fit to give in relation to the survey evidence were also sought.

3                     Practice Note No 11, signed by the Chief Justice on 8 April 1994, deals with survey evidence in the following terms:

“There are many problems in obtaining acceptable survey evidence including the use of relevant and unambiguous questions and whether the actual conduct of the survey (including methodology) is satisfactory.

The admissibility of surveys is always a matter for the trial judge to determine but the risk of the survey being rejected or given little, if any, weight at the trial may be diminished if the following procedure is followed when a party seeks  to have a survey conducted.  Subject to other directions of the Court in the particular case, the Court expects that this practice will usually be followed:

1.         Notice should be given in writing by the party seeking to have the survey conducted to the other parties to the proceeding.

2.         The notice should give an outline of:

            (a)        the purpose of the proposed survey;

            (b)        the issue to which it is to be directed;

            (c)        the proposed form and methodology;

            (d)        the particular questions that will be asked;

            (e)        the introductory statements or instructions that will be

                        given to the persons conducting the survey;

            (f)        other controls to be used in the interrogation process.

3.         The parties should attempt to resolve any disagreement concerning the manner in which the survey is to be conducted and any of the matters mentioned in 2 above.

4.         The matter of the survey should be raised with the Court at a directions hearing as soon as possible after the steps mentioned above have been taken.”

4                     It will readily be seen that the Practice Note sets out a procedure designed to throw up at an early stage objections which may be taken to the form and methodology and other aspects of a proposed survey.  It does not however establish conditions for the admissibility of survey evidence.  Admissibility may involve factual questions which can only be resolved by testing survey evidence at trial and, as the Practice Note makes clear, that is a matter for the trial judge to determine.  Issues of implementation and departures from the planned methodology cannot be anticipated by the Court in dealing with a proposed questionnaire and process.  The Centurion motion seeks leave to adduce evidence gathered from the proposed survey.  In so far as it seeks a prospective ruling on admissibility, it cannot succeed.  The purpose of the Practice Note on survey evidence is to minimise the risk at trial of time wasting challenges as to form and method which could have been raised upon their prior disclosure.  That is the objective of the present exercise.

5                     An attempt by a party at trial to raise an objection to survey evidence which could have been raised under the procedure for which the Practice Note provides is likely, at the least, to be visited by an adverse ruling as to costs thrown away possibly extending to the costs of the survey itself according to the circumstances of the case.  Alternatively, there may be a question in such a case whether the objection will be permitted to be maintained at trial. 

6                     These observations should not, of course, be taken as an encouragement to parties to throw up at the directions stage ambit objections to proposed survey evidence in order to cover all possible contingencies.  Professional and discriminating judgment is still required to ensure that only objections of substance are raised.

7                     The Court will not determine in advance of a case that evidence of a proposed survey will be admissible.   It may indicate that significant difficulties will attend the admissibility of such evidence where the form or methodology proposed throws up such difficulties.  In this way the parties may be saved some time and expense.

8                     The Practice Note emphasises the need for a co-operative rather than adversarial approach to the use of survey evidence.  In the present case, Centurion’s solicitors wrote to the solicitors for ATA and other respondents enclosing a draft of the proposed questionnaire.  The solicitors for ATA asserted that they were unable to comment on the proposed survey until after receipt of particulars and discovery relating to the allegation of loss of goodwill.  More detailed exchanges however followed about the proposed survey and further amendments to the draft questionnaire were made. 

9                     The survey evidence which is to be commissioned from Dr Mazzarol is to be used to assess the asserted loss in the value of the business of Centurion following from the alleged conduct of ATA.

10                  In its statement of claim Centurion asserts that it enjoys and has at all material times enjoyed substantial goodwill and reputation in the State of Western Australia.  In par 18 it asserts that as a direct result of the conduct of ATA, namely its misleading representations, the supply of defective goods and the unavailability of  spare parts, Centurion has suffered a diminution of its goodwill and reputation.  This is said to have been exacerbated by Centurion, in reliance upon ATA’s representations, using its goodwill to promote goods supplied by ATA as reliable, high quality products supported by sufficient facilities for their repair and by the availability of spare parts. Centurion’s solicitors say that the survey evidence to be commissioned from Dr. Mazzarol will be used in conjunction with a report from a chartered accountant to assess the loss in value of the business of Centurion.  The loss in value of the business will be said to comprise not only a diminution of goodwill but also a loss in the value of other assets which have been affected.  The proposed survey is intended to provide an objective measure of the extent of customer perception of Centurion products and ATA Securalift units.  It is intended to offer a similar level of objective evidence regarding customer perceptions and attitudes towards repurchase of goods from Centurion.  The impact of the difficulties with the Securalift Units on such decisions will be assessed with statistically reliable measures through a comparison of three sub-populations to be drawn from within the sample of persons interviewed as part of the survey.  Those sub-populations will be as follows:

1.         A first sub-population comprising approximately 3,000 customers who have purchased a door containing a Securalift  Unit who have not registered any complaint.  Two hundred of these customers will be surveyed.

2.         A second sub-population comprising approximately 1,000 customers who have identified and acknowledged a fault in the Securalift Unit supplied by ATA.  One hundred people from this sub-population will be surveyed.

3.         A third sub-population comprising approximately 1,000 customers who purchased goods from Centurion not fitted with ATA’s Securalift Unit. From this sub-population 100 will be surveyed.

11                  Key issues to be addressed by the survey are said to be:

1.         Identifying the reasons motivating customer purchase of the Centurion product.

2.         Measuring the level and nature of faults experienced by customers who have been supplied with Securalift Units.

3.         Measuring the level of customer willingness to repurchase the Centurion products and/or advocate the Centurion products to others.

The outcomes of the survey will be linked with a report provided by an appropriately qualified chartered accountant to:

1.         Assess the value of Centurion’s business prior to its use of the Securalift Units.

2.         Assess the current value of that business.

3.         Quantify Centurion’s loss or damage as a result of the supply to customers of the Securalift Units and their repair (including loss of goodwill and profits, cost of service calls and the cost of buying products from another supplier).

It is submitted for Centurion that the survey evidence will cast light upon relevant issues and allow the loss in value of its business as a result of the supply of defective units to be assessed.  It appears that the survey will be undertaken by telephone interview, to be conducted by a data collection agency, J.M.G. Marketing (Aust) Pty Ltd.

12                  It is submitted for ATA and the other respondents that the proposed conduct of the survey is not in accordance with Practice Note No 11.  The survey is said to use irrelevant and ambiguous questions, the result of which will not disclose the extent (if any) of loss of goodwill allegedly suffered by Centurion.  Nor will it disclose any alleged loss of goodwill which could reasonably be attributed to ATA.  Importantly, it is said, the survey does not assist in assessing the level of goodwill in Centurion’s business prior to the commencement of its business relationship with ATA.  ATA says it has not been given adequate opportunity to assess the questions and conduct of the survey proposed by Centurion against those matters listed in pars 2(a) to (f) of Practice Note No 11 in circumstances where ATA:

(a)        has not been provided with any substantive particulars as to the claim for loss of goodwill by Centurion;

(b)        has not yet inspected any discovery in support of the claim for loss of goodwill;

(c)        has not been provided with adequate particulars of the complaints allegedly made regarding its product; and

(d)        has been unable to inspect the premises where faults were alleged to have occurred.

In any event ATA submits that the composition of a company’s goodwill is characterised by a complex relationship of factors including revenue streams, image, service capability and history, growth or diminution in sales, product range, pricing competitiveness, negative publicity associated with previous litigation and level of awareness in the market.  The proposed survey is said not to seek to account for these factors so that answers given by the interviewee should not be admissible as evidence of the existence of impressions or opinions of the interviewees as to the alleged loss of value or goodwill by Centurion.

13                  Moreover ATA submits the questions are biased towards obtaining responses which might, however tenuous, indicate a loss of goodwill by Centurion solely due to the sale of one product to the market.  The survey conclusions cannot, it is said, be an appropriate source of evidence as to loss of goodwill in a dispute of this kind.  Assumptions made in conducting a survey as to the relationship between the factors which contribute to goodwill would need to be detailed to the parties and the Court.  The proposed survey is said not to outline any such assumptions and to be simplistic in its approach by focussing on one product supplied by Centurion to the market.

14                  ATA also submits that some individuals proposed to be surveyed by Centurion will be biased in that the views of the second sub-population are likely to have been influenced by knowledge of litigation between the parties.   In paragraph 13 of their submission ATA asserts that the proposed survey is unacceptable and unsatisfactory for a number of reasons which are set out as follows:

“a)      insufficient details have been provided as to the method of sampling from various sub-populations;

b)         insufficient details have been provided as to the treatment of call backs where the interviewee is not available at the time of the first call, or of the target response rate of the survey;

c)         it is not made clear what method of collecting information is proposed, nor why that approach is considered more likely to produce valid data than alternative methods;

d)         insufficient details have been provided as to the population from which you propose to draw the third sub-population, namely, customers who have purchased goods from the Applicant which have not been fitted with a Securalift Unit;

e)         the basis of the comparison between the third sub-population and the first two sub-populations is not evident;

f)         no rationale is provided as to the choice of sample size or he level of sample error and statistical signifcance attributable to that sample size; (sic)

g)         the Respondent would expect that an appropriate survey include a fourth sub-population, being customers of the Applicant who have purchased goods which have the capacity to be, but have not been, fitted with a door opener manufactured by the Respondent;

h)         the survey asks questions directed at faults as alleged in the Applicant’s statement of claim, it does not seek to address whether faults other than those alleged have contributed to any customer complaints or overall satisfaction with the Applicant;

i)          no indication is provided that respondents to the survey will have an opportunity to give informed consent for their answers to be used in legal proceedings, nor is there any indication that identity of respondents will be retained to enable validation of the integrity of the survey results;

j)         the opening remarks to the interviewees of the survey state that: “we are currently conducting market research on behalf of Centurion Roller Shutters Pty Ltd into customer satisfaction with their products”, the questions do not focus on customer satisfaction but relevantly on the performance of one product only and the loss of goodwill resulting from the claimed defects in that product;

k)         the survey does not address the issue of wear and tear on the doors and ATA Securalift Units by customers, a point acknowledged by the Applicant in part 3.13 of its letter to the Respondent’s solicitors dated 3 August 1999;

l)          it appears that the interviewer will receive an indicator of the purpose of the survey, an approach which is inconsistent with standard survey practice; and

m)        no indication is provided as to the customers’ historical relationship with the Applicant and therefore other factors which may contribute to goodwill are not addressed.”

15                  By way of general response Centurion makes the point that ATA fails to appreciate that the survey alone will not lead to a determination of loss of goodwill or loss in the value of the business.  It would allow customer perceptions of faults with Centurion’s product and the Securalift Units to be measured together with attitudes towards repurchase and recommendation of Centurion’s products.  The accountant’s report will value the business prior to the use of Securalift Units and its current value.  Assumptions made in valuing the business and its goodwill will be provided in the accountant’s report.

16                  ATA is said to have had ample opportunity to assess the questions and the conduct of the survey against the matters listed in par 2(a) to (f) of Practice Note No 11.

17                  Centurion intends its survey to be anonymous with no record kept of the identity of the interviewees other than confirming each interviewee as a customer of Centurion in a particular sub-population.  There is a concern that informing interviewees of the nature of the survey and the litigation and recording their names for future followup would create the risk of a sample response bias.  Many interviewees might alter their responses if they feared being called as a witness.  Many others might refuse to participate for the same reason.  Calling interviewees at trial would greatly increase the expense of the proceedings.

18                  Centurion contends that ATA has not notified it of objections to the particular wording of questions other than a general assertion that the questions are leading or biased towards obtaining certain responses.  Centurion submits that it is incumbent on ATA to outline with particularity any objections it may have as to particular wording of questions so the parties can attempt to resolve any disagreement in terms of par 3 of Practice Note No 11.  It submits that ATA should be directed to provide with particularity objections it may have to the particular wording of questions in the survey questionnaire and should not be permitted at trial to raise issues of alleged defects with the methodology of the survey other than those raised in accordance with Practice Note No 11 prior to the commissioning of the survey.

19                  I would not be prepared to make an order precluding Centurion from adducing evidence derived from a survey conducted in accordance with the form and methodology proposed.  Such an order would be inconsistent with the terms of Practice Note No 11.  I do, however, have concerns about the weight that might be able to be given to the responses to some of the questions proposed.

20                  It is important to observe that the introduction to the survey identifies the interviewer as representing or acting on behalf of Centurion.  This may be linked in the minds of some interviewees to the questions in s 5 to engender a perception that the survey is some kind of marketing exercise by Centurion.

21                  Section 2, dealing with purchase criteria, begins by identifying the factors listed as “likely to be of importance to people when selecting a garage door”.  Nevertheless three of the options offered to the interviewees are inconsistent with that opening assertion.  Those are the choices which would characterise the listed factor as “extremely unimportant” or “unimportant” or “neutral”.  The way in which the question is introduced could therefore be seen as introducing a bias in favour of characterising the various factors as important or extremely important. 

22                  Section 3, dealing with experience of faults, is open to the observation that it concerns “any faults you may have experienced with your garage door since it was installed”.  It also refers to “several possible conditions you may notice about the door’s operations”.   There is no doubt that to a degree the questions are leading by suggesting circumstances under which the door operating system has failed and the mode of failure.  The nature of the questions in that respect would have to be taken into account in assessing the weight to be given to the results.  Whether or not a form of question can be devised that elicits faults and their frequency and circumstances without first suggesting what they are, I do not know.  But if the questionnaire can be devised along those lines it might well carry more weight.  That is not to say that questions identifying particular circumstances of failure could not follow upon questions which endeavour to elicit those circumstances in a non-leading fashion.

23                  I would not think  the survey likely to be held inadmissible by reason only of the fact that it has been conducted by telephone.  I would not wish at this stage to rule on other methodological issues that can better be addressed in the context of the trial and in the light of the outcome of the survey itself.

24                  Centurion is on notice of objections taken by ATA to the methodology of the survey.  Specific objections to particular questions should be provided by ATA in advance of the conduct of the survey and I will propose a timeframe for the provision of those objections.  I have some sympathy however  for the view that ATA should not be required to state its final position on the questions until it has had an opportunity to consider the particulars and discovery provided by Centurion.

25                  I will make directions accordingly.

Associate:

Dated:              16 August 1999