Fenton & Anor v Ozzz Lo Pty Ltd [2018] QDC 268

DISTRICT COURT OF QUEENSLAND CITATION: Fenton & Anor v Ozzz Lo Pty Ltd & Ors [2018] QDC 268 PARTIES: DONALD FENTON and TAMARA SPEIDEL (plaintiffs) v OZZZ LO PTY LTD ACN 010 480 243 (first defendant) and OZZZ LO HEALTHCARE PTY LTD ACN 108 007 058 (second defendant) and ROBERT ARTHUR BOOL (third defendant) and JOYCE MARY BOOL (fourth defendant) FILE NO/S: D 168 of 2013 DIVISION: Civil PROCEEDING: Claim ORIGINATING COURT: Maroochydore District Court DELIVERED ON: 20 December 2018 DELIVERED AT: Maroochydore District Court HEARING DATE: 29–31 May 2017, 18 August 2017, 15 September 2017 JUDGE: Long SC DCJ ORDER: Judgment for the plaintiffs in the amount of $89,451.60, including $27,760.84 in interest: Against the first and second defendants, for contravention of s 52 of the Trade Practices Act 1974 (Cth); and Against the third defendant, pursuant to s 75B(1)(c) of the Trade Practices Act 1974 (Cth), for being knowingly concerned in that contravention. -- 1 of 61 -- 2 CATCHWORDS: TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION –MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS – FALSE REPRESENTATIONS GENERALLY – where the plaintiffs purchased a business in manufacturing a product being reusable hot/cold gel packs from the first and second corporate defendants – where the third and fourth defendants were directors of those corporations – where representations were made to the plaintiffs as to the non-toxicity of the product and the contents of it – where the product contained a substance that was particularly toxic – where it is alleged the defendants had knowledge of the facts establishing toxicity – where the plaintiffs relied on the representations – where it is alleged the representations were misleading and deceptive and therefore contravened s 52 of the Trade Practices Act 1974 – where it is alternatively alleged the representations were negligent misrepresentations – whether the representations were misleading and deceptive – whether the third and fourth defendants have accessorial liability pursuant to s 75B of the Trade Practices Act 1974 – whether and to what extent damage or loss has been caused by any contravention – whether it is appropriate to reduce any such recovery pursuant to s 82(1B) of the Trade Practices Act 1974 LEGISLATION: Civil Proceedings Act 2011 s 58 Competition and Consumer Act 2010 s 137B Trade Practices Act 1974 (Cth) ss 52, 75B, 82(1), 82(1B), 87 Uniform Civil Procedure Rules s 150 CASES: Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 Australian Competition and Consumer Commission v Danoz Direct Pty Ltd [2003] FCA 881 Australian Securities and Investments Commission v ActivSuper Pty Ltd (in liq) & Ors (2015) 235 FCR 181 Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 at 625 Caltex Australia Petroleum Pty Ltd v Charben Haulage Pty Ltd [2005] FCAFC 271 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 Carlton v Pix Print Pty Ltd [2000] FCA 337 Citrus Queensland Pty v Sunstate Orchards Pty Ltd (No 7) [2008] FCA 1364 Cut Price Deli Pty Ltd v Jacques (1994) 49 FCR 397 -- 2 of 61 -- 3 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 Gould v Vaggelas (1985) 157 CLR 215 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No.1) (1998) 39 FCR 546 Henville v Walker (2001) 206 CLR 459 Heydon v NRMA Ltd (2000) 51 NSWLR 1 I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40–950 Keller v LED Technologies Pty Ltd 185 FCR 449 at 520 Kizbeau Pty Ltd v WG & BPty Ltd (1995) 184 CLR 281 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 McCarthy v McIntyre [1999] FCA 784 Medical Benefits Fund of Australia Ltd v Cassidy (2003) 205 ALR 402 Merost Pty Ltd v CPT Custodian Pty Ltd [2014] FCA 97 Mooloolaba Slipways Pty Ltd v Cashlaw Pty Ltd [2011] QSC 236 Netaf Pty Ltd & Anor v Bikane Pty Ltd (1990) 26 FCR 305 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Perre v Apand (1999) 198 CLR 180 at 231 Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd (No 2) [2009] WASCA 183 R v Cushion; ex parte DPP (1998) 150 ALR 45 Radferry Pty Ltd v Starborne Holdings Pty Ltd [1998] FCA 1689 Rafferty v Madgwicks (2012) 203 FCR 1 Taco Company of Australia Inc & Anor v Taco Bell Pty Limited & Ors [1982] FCA 136 Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565 Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 Vouzas v Bleake House Pty Ltd [2013] VSC 534 Woolcock Street Investments v CDG (2004) 216 CLR 515 WP Kidd P/L & Anor v Panwell Pty Ltd & Ors [2007] QSC 373 Yorke v Lucas (1985) 168 CLR 661 COUNSEL: S M Gerber for the plaintiffs J Wilson-Smith for the defendants SOLICITORS: McCormick Lawyers for the plaintiffs Griffiths Parry Lawyers for the defendants -- 3 of 61 -- 4 Introduction [1] By an amended claim filed on 9 January 2014, the plaintiffs claim: (a) As against the first and second defendants: “1. Damages and/or compensation under s 82 and/or 87 of the Trade Practices Act 1974 (Cth) (“TPA”); 2. Interest on damages pursuant to s 58 of the Civil Proceedings Act 2011; 3. Costs; and 4. Further and/or other relief.”; and (b) As against the third and fourth defendants: “1. Damages and/or compensation under s 82 and/or 87 of the TPA by reason of the third and fourth defendants being involved in the contraventions of the TPA within the meaning of s 75B of the TPA; 2. Damages for negligence; 3. Interest on damages pursuant to s 58 of the Civil Proceedings Act 2011; 4. Costs; and 5. Further and/or other relief.” [2] Those claims are made and pursued in the following contextual circumstances, which were not in issue and mostly admitted in the pleadings:1 (a) The plaintiffs, Donald Fenton (“Mr Fenton”) and Tamara Speidel (“Mrs Speidel”), are husband and wife and the trustees for the Cool Blue Health Family Trust (“the Trust”).2 (b) On 16 October 2007, the plaintiffs purchased from the first defendant, Ozzz Lo Pty Ltd (Ozzz Lo), a business known as “Australian Blue Healer Ice Pack” and “Blue Healer” (“the Business”), which manufactured and sold reusable hot/cold packs (“the Product”) which contained a thermal gel.3 (c) The third defendant, Mr Robert Arthur Bool (“Mr Bool”) is the sole director of Ozzz Lo Pty Ltd (“Ozzz Lo”). The fourth defendant, Mrs Joyce Mary Bool (“Mrs Bool”) was a director and secretary from 5 1 Being the further amended statement of claim filed on 29 May 2017 (“FASOC”), further amended defence filed on 20 November 2014 (“Defence”) and reply filed on 5 January 2015 (“Reply”) 2 FASOC at [2] and admitted at [1] of the Defence. 3 FASOC at [3(f)] and admitted at [1] of the Defence. And see the ASIC company searches: Ex. 7 and Ex. 8. -- 4 of 61 -- 5 October 1983 until 20 August 2002. Mr Bool was and is the sole director and secretary of the second defendant, Ozzz Lo Healthcare Pty Ltd (“Ozzz Lo Healthcare”).4 Mr Bool and Mrs Bool were also the shareholders of Ozzz Lo and Ozzz Lo Healthcare and employees of Ozzz Lo Healthcare.5 (d) The first and second defendants were corporations engaged in trade and commerce within the meaning of the Trade Practices Act 1974 (Cth) (“TPA”).6 (e) Mr Bool had been involved in making gel packs since about 1993 and he and his wife had together made the Product for about 12 years,7 and he had made approximately 175,000 gel packs in that time.8 (f) The Business was conducted from the third and fourth defendants’ home at 238 Forest Acres Drive, Lake MacDonald, Queensland (“the Defendants’ Home”). 9 (g) On about 31 August 2007 and through a real estate agent, Ray White Commercial, Ozzz Lo advertised the Business for sale, in the Noosa News newspaper (“the Advertisement”).10 (h) It is admitted,11 that in response to the Advertisement, on or about 29 August 2007, the plaintiffs met with the third and fourth defendants, at the defendants’ home (“the First Meeting”), at which meeting: (i) Mr Bool said to the plaintiffs that: “The gel packs were non- toxic, but you probably wouldn’t want to eat one”; (ii) Mr and Mrs Bool showed the labels,12 and the pouches/packages,13 of the Product to the plaintiffs, which stated “Contents are non-toxic, however do not consume”; (iii) Mr and Mrs Bool stated that the Product had Therapeutics Goods Administration (“TGA”) approval which was 4 FASOC at [3(a) to (d)] and [4(a) to (d)], as admitted at [1] of the Defence. 5 FASOC at [3(e)] and [4(e)], as admitted at [14] of the Defence. 6 Admitted in the Defence at [1]. 7 FASOC at [5] and admitted at [15] in the Defence. 8 T3–87.12. 9 FASOC at [3(g)] and admitted at [1] in the Defence. 10 FASOC at [3(h)], as admitted at [1] in the Defence. And see Ex. 2 at tab 1. 11 FASOC at [6(a)] to [6(e)(ii]), as admitted at [1] in the Defence. 12 Ex. 2 at tab 3. 13 Ex. 2 at tab 2. -- 5 of 61 -- 6 necessary in order to sell the Product in pharmacies and that the TGA approval would go with the Business; and (iv) Mr and Mrs Bool showed the plaintiffs the web site for the Business,14 which stated that the Product was “manufactured using high quality non-toxic thermal gel...” Collectively, these statements were pleaded and are referred to as the “First Representations”. [3] It is admitted that at the First Meeting, Mr and Mrs Bool showed the plaintiffs the pouch and label which listed mono ethylene glycol (“MEG”) as an ingredient,15 but it is denied that MEG was specifically referred to or discussed by Mr and Mrs Bool (who plead that they said “it was common knowledge in the gel-pack industry that MEG was the anti-freeze agent used in gel-packs).16 [4] On about 4 September 2007, a further meeting occurred between the plaintiffs and Mr and Mrs Bool, again at the Defendants’ Home (“the Second Meeting”). Mrs Speidel asked Mr and Mrs Bool why the expenses for “protective gear” shown in the draft accounts for the Business,17 were so high and whether the ingredients used to make the Product were toxic, as she did not want to put the health of her husband and their two young children at risk (“the Query”).18 The defendants deny that Mrs Speidel asked whether the ingredients were toxic or that she stated that she did not want to put the health of her husband and children at risk.19 (a) The plaintiffs say that, in response to the Query: (i) Mr Bool said to them words to the effect that “The only protective gear was a mask and gloves that were used to prevent the inhalation of one of the powdered ingredients [being a reference to a thickening agent Acritamer 940] for the gel, not because it was poisonous, but because it would stick to your hands and could become airborne”; and 14 Ex. 2 at tab 4. 15 Ex. 2 at tabs 2 & 3. 16 See the Defence at [18] and the Reply at [14]. 17 Ex. 2 at tab 5. 18 FASOC at [7]. 19 FASOC at [7] and the Defence at [20]. -- 6 of 61 -- 7 (ii) Mrs Bool stated to the plaintiffs words to the effect that “The product was not toxic but you wouldn’t want to eat it”.20 This was pleaded as and is referred to as, the “Second Representation”. (b) In response, the defendants say that: (i) Mr Bool said words to the effect that “the masks and gloves were used to prevent the inhalation of one of the powdered ingredients of the gel (Acritamer) because it could become airborne and because it would stick to your hands”; (ii) Mrs Speidel then asked if it (Acritamer) was poisonous; and (iii) Mrs Bool responded that you would not want to eat it (Acritamer); and (iv) no mention was made of MEG, the gel, the Product or the TGA.21 (c) The plaintiffs deny the defendants’ version of this conversation and say that no specific ingredients were mentioned by name at the Second Meeting because they hadn’t signed any contract.22 [5] It is admitted that at the Second Meeting, Mr Bool explained that the Product was listed on the Australian Register of Therapeutic Goods (“the ARTG”) and as such, was approved for sale in pharmacies throughout Australia and could be exported. The plaintiffs say that Mr Bool told them that this ARTG number would be transferred with the sale of the Business as it was crucial to the carrying on of the Business. The defendants say that Mr Bool told the plaintiffs “that they would have to apply for their own ARTG number however the plaintiffs would have access to the TGA compliance documentation used by the defendants to form the basis of their own application...”. That allegation is denied by the plaintiffs.23 [6] The defendants admit that at no time did the third or fourth defendants tell the plaintiffs that the application to list the product on the ARTG was by a self- 20 FASOC at [8]. 21 Defence at [21]. 22 Reply at [16]. 23 FASOC at [9], the Defence at [23(a)] and the Reply at [18(a)]. -- 7 of 61 -- 8 certification process.24 And the Business Sale Contract dated 9 October 2007 (First Contract)25 entered into by the parties, in item K, lists the licences necessary to operate the Business as “TGA Approved Class 1 ARTG No 113480”. Pursuant to clause 8.1(e) of the First Contract, Ozzz Lo was required to execute all such documents to transfer that licence to the plaintiffs. Ms Speidel explained, consistently with her evidence as to earlier discussions, that the inclusion of the transfer of the ARTG approval in the contract was added at her request and with the express agreement of Mr Bool.26 However it was also conceded that by the day before settlement of the contracts, on 16 October 2004, it had been clarified that the then existing ARTG approval could not be effectively transferred to the plaintiffs and that they would have to make their own online application “to carry on the opportunity of retailing the product at pharmacies.”27 Mr Fenton further explained that this unexpected development was then dealt with on the basis of Mr Bool providing him with a copy of the Device Application that had previously submitted to obtain the ARTG registration (and related documentation),28 for Mr Fenton to copy and submit, which Mr Fenton then did on 10 November 2007.29 The Issues [7] The plaintiff contends that the simple and primary issue to be decided in this case is whether it was false for the defendants to represent to the plaintiffs that the contents of a gel pack were non-toxic despite the admitted facts that: (a) the contents contained approximately 25% MEG;30 (b) MEG is toxic;31 and (c) the estimated lethal dose of ingested MEG for an average person is 100mls.32 24 FASOC at [10], as admitted in the Defence at [1]. 25 Ex. 2 at tab 6. 26 T1–30.15–1–32.2. 27 T1–67.12–1–68.25 and T2–36.5–2–38.25. 28 See Ex. 2 at tab 30. 29 See Ex. 2 at tab 14. 30 Defence at [24]. 31 Defence at [29A]. 32 Defence at [29A]. -- 8 of 61 -- 9 [8] However, that may well be an oversimplification. And it may be noted that for the defendants, it is contended that the issues to be determined are: “1. Whether the pleaded representations amounted to misleading and deceptive conduct for the purpose of section 52 of the Trade Practices Act 1974 (Cth) (‘the TPA’); 2. Whether the Third and Fourth Defendants knew the representations were false; 3. Whether the Third and Fourth Defendants were negligent; 4. In the event the pleaded representations amounted to misleading and deceptive conduct what reliance was placed on that conduct by the Plaintiffs; 5. The loss [that] was caused by misleading and deceptive conduct and/or negligence; 6. The extent were (sic) the Plaintiffs are responsible for their own loss.” 33 Misleading or Deceptive Conduct Principles [9] The TPA applies to this claim as the making of the representations, the entry into and settlement of the contracts in reliance, as claimed, on the representations, all occurred in 2007 and prior to the commencement of the Competition and Consumer Act 2010 and the operation of the Australian Consumer Law, which commenced on 1 January 2011. The basis of the claim is in s 52(1) of the TPA, which prohibits a corporation from engaging “in conduct that is misleading or deceptive, or is likely to mislead or deceive”. [10] For the plaintiff reliance is placed on the following principles: (a) A person engages in misleading conduct if they engage in conduct that might lead a reasonable person in the position of the recipient of the information to be led into error. The test of whether conduct is misleading or deceptive, or likely to be misleading or deceptive, is an objective question of fact for the court to determine;34 33 Defendants’ written submissions. 34 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198–9. -- 9 of 61 -- 10 (b) It is a matter for the court to decide what a reasonable person in the position of the plaintiff would have understood from the representations;35 (c) Conduct is likely to mislead or deceive if there’s a real, or not remote, chance or possibility regardless of whether it is less or more than 50%;36 (d) The High Court in Campbell v Backoffice Investments Pty Ltd,37 emphasised that the task of characterisation is by reference to all the circumstances and the whole context of the questioned conduct. This will include the particular person who engaged in the conduct and the particular purchaser who is said to rely on the conduct, bearing in mind what matters of fact each knew about the other as a result of the nature of their dealings and the conversations between them and facts which each may be taken to have known. (e) A contravention of s 52 of the TPA may occur without knowledge or fault on the part of the defendant and notwithstanding the exercise of reasonable care;38 (f) A representation will be misleading or likely to mislead or deceive if any reasonable interpretation of it would lead a member of the class, who can be expected to read it, into error;39 (g) In Taco Company of Australia Inc & Anor v Taco Bell Pty Limited & Ors,40 Franki J stated: “Broadly speaking it is fair to say that the question is to be tested by the effect on a person, not particularly intelligent or well informed, but perhaps of somewhat less than average intelligence and background knowledge, although the test is not the effect on a person who is, for example, quite unusually stupid. The question is not whether the purchaser was deceived but whether the conduct was misleading or deceptive.” 35 Vouzas v Bleake House Pty Ltd [2013] VSC 534 at [105]. 36 Citrus Queensland Pty v Sunstate Orchards Pty Ltd (No 7) [2008] FCA 1364 at [97]. 37 (2009) 238 CLR 304 at [26] and [27]. 38 Parkdale Custom Built Furniture Pty Limited v Puxu Pty Limited (1982) 149 CLR 191 at 197. 39 Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 at 50. 40 [1982] FCA 136. -- 10 of 61 -- 11 [11] For the defendant there was only difference as to matters of emphasis. Particular reference was made to: (a) The following summary of general principles by Collier J in Citrus Queensland Pty v Sunstate Orchards Pty Ltd (No 7):41 1. Section 52 of the Act requires that the relevant corporation engage in conduct that is misleading or deceptive. Section 4(2)(a) of the Act provides that: a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, an understanding or the requiring of the giving of, or the giving of, a covenant. “Conduct” is not co-extensive with “representation” in s 52 (Lockhart and Gummow JJ in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 at 504, Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 per Gleeson CJ, Hayne and Heydon JJ at 603, McHugh J at 622) however engaging in conduct does encompass making representations (cf McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2 at [150]). 2. Where a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive, it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court the nature of the alleged conduct and the circumstances which rendered the conduct misleading: McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318 (cf for example, Lahoud v Lahoud [2006] NSWCA 169 at [91], Yang v American International Assurance Co (Australia) Ltd [2008] FCA 39 at [89]). 3. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances: Watson 49 NSWLR 315 at 318 (cf for example Christofidellis v Zdrilic [1999] FCA 39, Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 6) (2007) 63 ACLR 1 at 107, Yang FCA 39 at [89]). 4. The essential characteristic of misleading or deceptive conduct is that it contains or conveys a meaning which is false (Global 41 [2008] FCA 1364 at [97]. -- 11 of 61 -- 12 Sportsman Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88). 5. There will be no contravention unless error or misconception results from the conduct of the corporation, and not from other circumstances for which the corporation is not responsible (Equity Access Pty Ltd v WesTPAc Banking Corporation (1990) ATPR 40-994 at 50,950; Miller’s Annotated Trade Practices Act (29th ed) 1.51.5). 6. Whether or not conduct is misleading or deceptive is a question of fact to be decided by considering what is said and done against the background of all surrounding circumstances (Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202). 7. The words likely to mislead or deceive add little to s 52; at most they make it clear that it is unnecessary to prove that the conduct in question actually deceived or misled anyone (Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198). Conduct will be likely to mislead or deceive if there is a real or not remote chance or possibility of misleading or deceiving, regardless of whether it is more than 50% (Parkdale Custom Built Furniture Pty Ltd 149 CLR 191 at [6], [15], Equity Access Pty Ltd ATPR 40-994 at 50,950, Global Sportsman Pty Ltd 2 FCR 82, McHugh J in Butcher 218 CLR 592 at 626). 8. Silence, or failure to disclose information, can fall within the gamut of misleading or deceptive conduct in the sense that having regard to all the relevant circumstances, it constitutes conduct that has been misleading or deceptive or that is likely to mislead or deceive (Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32, 41; Fleetman Pty Ltd v Cairns Pty Ltd [2005] FCAFC 80 at [1]-[2]). 9. The conduct of a corporation must be viewed as a whole. It would be wrong to select some words or act which, alone, would be likely to mislead if those words or acts, when viewed in their context, were not capable of misleading (Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd 149 CLR 191 at 199). 10. As a general rule intention (or lack of intention) to mislead or deceive is not a necessary element of conduct proscribed by s 52 (Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 228). The liability imposed by s 52 is unrelated to fault (Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd 149 CLR 191 at 197). 11. The court must decide objectively whether the conduct is misleading or deceptive or likely to mislead or deceive. For example, evidence that members of the public have actually -- 12 of 61 -- 13 been misled is not conclusive, although it can be very persuasive (Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd 149 CLR 191 at 198-199, McWilliam’s Wines Pty Ltd v McDonald’s System of Australia (1980) 33 ALR 394 per Smithers J at 399 and Fisher J at 414, Equity Access Pty Ltd ATPR 40-994 at 50,950)." (b) The consideration that whether conduct is misleading depends upon the context in which it occurred, with reference to the following observations of Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd:42 “Section 52 does not expressly state what persons or class of persons should be considered as the possible victims for the purpose of deciding whether conduct is misleading or deceptive or likely to mislead or deceive. It seems clear enough that consideration must be given to the class of consumers likely to be affected by the conduct. Although it is true, as has often been said, that ordinarily a class of consumers may include the inexperienced as well as the experienced, and the gullible as well as the astute, the section must in my opinion by regarded as contemplating the effect of the conduct on reasonable members of the class. The heavy burdens which the section creates cannot have been intended to be imposed for the benefit of persons who fail to take reasonable care of their own interests. What is reasonable will of course depend on all circumstances.”; and (c) The endorsement in Campbell v Backoffice Investments Pty Ltd,43 of the following passage from the judgement of McHugh J in Butcher v Lachlan Elder Realty Pty Limited:44 “The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the [person’s] conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct.” 42 (1982) 149 CLR 191 at 199. 43 (2009) 238 CLR 304 at 341–2 (Gummow, Hayne, Heydon and Kiefel JJ). 44 (2004) 218 CLR 592 at 625. -- 13 of 61 -- 14 Contentions [12] Some uncontroversial context is that: (a) On 9 October 2007, the plaintiffs executed contracts to purchase the Business in which the defendants had been manufacturing the Product for approximately 12 years.45 The First Contract was to purchase the Business from the first defendant for the sum of $100,000.00 (plus GST) and the Second Contract was to purchase the goods and stock-in-trade of the Business from the second defendant up to the value of $14,000.00 (plus GST);46 (b) The purchase was settled on or about 16 October 2007, after there was a 14 day “due diligence” period, enabling termination upon notice of unsatisfactory enquiry by the plaintiffs.47 And during that period the plaintiffs had access to the relevant documentation in the possession of the defendants, all of which was delivered upon settlement.48 And also prior to contracting to purchase the Business, the plaintiffs had opportunity to consult with the plaintiff’s commercial agent and a chemical engineer.49 (c) As admitted, at the First Meeting, the plaintiffs were shown the label and pouch for the product, which listed MEG as an ingredient;50 (d) MEG had been used as an ingredient in gel packs for many years, and the product was one of at least eight brands of gel-pack sold in Australia and registered on the Australian Register of Therapeutic Goods (“ARTG”), which contained MEG;51 (e) The Business was offered for sale on the advertised basis that: (i) It was a medical industry manufacturing business; (ii) It could be operated from home by a husband and wife team working part-time; 45 Ex.2 at tabs 6 and 7. 46 Ex. 2 at tabs 6 and 7. 47 Ex.2 at tab 6, see special condition 6 of Annexure A. 48 Defence outline of submissions at [26]. 49 T2–61.20-29; and T3–73.3-8. 50 Reply at [14(a)]. 51 Ex 2 at tab 9, pp 82–4. -- 14 of 61 -- 15 (iii) It was Therapeutics Goods Administration (“TGA”) approved; and (iv) Experience was not necessary;52 (f) The plaintiffs had previous business experience and managed numerous investment properties.53 The plaintiffs had previous experience of running a business involving compliance with statutory regulations;54 (g) About September 2008, the plaintiffs were notified by the TGA of an incident involving a boy becoming unwell after ingesting the contents of a gel pack produced by another manufacturer. By letter dated 3 October 2008 to the plaintiffs, the TGA proposed suspending its approval of the Product on the basis that “there is a risk of serious illness or injury if the device continues to be included in the Register, namely the risk of ingestion of ethylene glycol”.55 Consequently, over approximately four to six weeks in September/October 2008, the plaintiffs recalled the Product and reformulated it using Propylene Glycol (“PG”) instead of MEG; and (h) The plaintiffs have continued to operate the Business. [13] The defendants emphasize that, as was admitted in the pleadings, the Product was intended to be used only externally, when not punctured and by adults or under adult supervision.56 And draw particular attention to the circumstance that the packaging on the Product contained clear written directions for use and warnings including:  “DO NOT consume”;  “Discard pack if punctured”;  “Store out of children’s reach”;  “Adult supervision is required for children’s use”;  “Not for use on infants”; and 52 Ex 2 at tab 1. 53 Ex. 1 at [3.3.1]. 54 T2–54. 55 Ex.2 at tab 9. 56 Defence at [7], admitted in Reply at [2]. -- 15 of 61 -- 16  “Use externally only”.57 [14] Largely the parties gave evidence consistently with the respectively pleaded cases. However and as correctly noted for the defendants, Mrs Spiedel did not give evidence that she stated at the Second Meeting that she did not want to put the health of her husband and children at risk.58 And no such evidence was given by Mr Fenton or Mr or Mrs Bool.59 [15] The remaining dispute as to what was said by way of any relevant representation of the defendants at the Second Meeting, requires some examination of the evidence of Mr and Mrs Bool and an understanding of an underlying theme, which was pressed in submissions made for them and having regard to the admitted First Representation: “The evidence does not support the proposition that a description of a particular product as “non-toxic” necessarily means that all the ingredients contained therein are non-toxic.”60 It is also pointed out that the reformulated product manufactured by the plaintiffs is described as non-toxic.61 Unsurprisingly, it is not suggested that such description is a misrepresentation. However, it is submitted that the product contains ingredients that individually could be considered “toxic”,62 such as Caustic soda which can be a Schedule 5 or 6 poison,63 and Propylene Glycol which is described as being non-toxic, however, the MSDS disclosed demonstrates it has toxicity.64 The further submission is that: “It appears that whether a final product can be described as non-toxic depends on a number of variables, not just the properties of the individual ingredients.”65 [16] As is correctly pointed out for the plaintiffs, the position of the defendants must be considered in the context of the admissions in paragraph 29A of the defence that MEG: 57 See Ex. 2 at tab 3; Defence at [9], admitted in Reply at [5]. 58 T1–27 to T1–29. 59 T2–19 to T2–20; T3–72 to T3–75; 60 Defendants’ written submissions at [55]. 61 Defendants’ written submissions at [56]. 62 Defendants’ written submissions at [56]. 63 Ex. 2 at tab 28 p. 3. 64 Ex. 2 at tab 35 p. 8 of 10. Although, the suggestion pales into insignificance when compared with the known toxicity of MEG and appears to be clutching at straws. 65 Defendants’ written submissions at [57]. -- 16 of 61 -- 17 (a) Is toxic other than during normal conditions of use as specified by the manufacturer; (b) Is harmful or fatal if swallowed; and (c) The estimated lethal dose of ingested MEG for an average person is 100mls. [17] Further, it is also correctly pointed out that the labelling on the Product and related packaging appears in the context of a written assertion: “Contents are non-toxic, however DO NOT consume”.66 And it is in such context that the evidence of the Bools is criticised by the plaintiffs. It is pointed out that Mr Bool gave evidence that: (a) He came up with the words on the labels;67 (b) He did not know what the word “toxic” meant. The following passage, in cross-examination, is noted: “Now, you admit in this proceeding that you knew MEG was toxic?---I knew MEG was a hazardous chemical. Do you know what “toxic” means?---No, sir, I do not. It means – I put it to you that it means poisonous?---Okay. It comes from the Latin toxicum which is – means poison. So you didn’t know what the word “toxic” meant when you put this on the packet? HIS HONOUR: Is that what you’re saying?---I knew what’s in this bag was non-toxic when I made it as I was directed. But non-toxic in what sense? What – what did you understand it to mean?---I understood it from talking to the Redox representatives that if I kept the formula to below 25 per cent, I would never have the 100 mils; therefore, it’s non- toxic.”;68 (c) He had mistakenly admitted that MEG was “toxic” in paragraph 29A of the defence, “because at the time all this was going on, there was a lot of stress, and I made a mistake”.69 [18] There is then criticism of the evidence of Mr Bool, in that: 66 Ex. 2, at tabs 2&3, noting that the emphasis by way of capitalization of the words “DO NOT” appears on the packaging but not the gel pack itself. 67 T4–4.30–35. 68 T3–88.3–19. And as is noted for the plaintiffs a common meaning for “toxic’ is “poisonous”, with the Cambridge English online dictionary defining “non-toxic” as “not poisonous or not containing poisonous substances”. 69 T3–100.45. -- 17 of 61 -- 18 (a) It is inherently unlikely that a mistake with respect to such a fundamental issue was made, particularly given that paragraph 29A of the defence was part of the amendments inserted into the defence, more than 6 months after the original defence was filed; and (b) That a preferable explanation lay in, what is described as, ‘evasive and disingenuous evidence” given by Mr Bool and particularly in seeking to avoid confrontation of the problem inherent in the identified nature of the MEG as a component of the Product. [19] It is noted that in his evidence, Mr Bool stated that the Product was non-toxic, because he made sure that the gel packs contained just under 100mls of MEG, so that it was “below the lethal limits”70 and: “It was made aware to me that any of my products should not have any more than 100mls of MEG in them and it was absolutely critical to keep that below that. So I knew my largest pack was 400 grams. So if I had under 100 mills in there I was safe”.71 And it is noted that the response of Mr Bool to the question; “Do you know what “an average person” is?”, was : “Somewhere between a – an adult and a child”.72 Specific reference is made to the following exchange: “Do you mean to say that that’s your view now as well, that the contents of the packs were non-toxic or not toxic?--- I would still suggest – and it might sound wrong – it’s non-toxic because you would have to eat the whole lot, and it’s not just MEG. There’s 80 per cent of water in there”.73 [20] However and as is also pointed out, in his evidence, Mr Bool suggested that he told Mr Fenton that MEG was hazardous prior to the completion of the First and Second Contracts, as follows and during cross examination: “I’m asking you when you told him that it’s a hazardous chemical?--- At the third meeting. That’s just a recent invention that you’ve made, isn’t it?---No, sir. 70 T3–62.45–T3–63.5. 71 T3–52.12 and T3–52.20. 72 T3–88.25. 73 T3–89.45. -- 18 of 61 -- 19 Why wouldn’t you have told your lawyers this?---The third meeting is when Mr Fenton made up a batch of gel, and I said - - - I’m not asking – I’m asking you did you tell your lawyers that you told Mr Fenton that MEG was a hazardous chemical?---I can’t recall sir, but I told Mr Fenton. Because it’s not a matter that you pleaded in your defence. In your defence you admit to saying that the product and that the gel – the thermal gel is non-toxic but you wouldn’t want to eat it?---Yes. That’s correct, sir.”74 [21] It is further noted that Mr Bool sought to downplay any sense of concern arising in his evidence in respect of an incident at the Cooroy squash court in about 2005, when he had been informed that a small child had chewed one of the defendants’ gel packs (but did not ingest any gel).75 It is also noted that Mr Bool maintained in his evidence that his TGA application (made at the end of 2002 to early 2003),76 was a well-reasoned, well-researched and documented risk assessment,77 and that he considered that ingesting a small amount of the thermal gel would be remote, but only in circumstances where people were exposed to gel in the defendants’ factory. He did not consider it a less remote possibility that gel might be ingested from a pack, “because it had never occurred before. There was no precedent to it.”78 However and when confronted about the incident at the squash court, Mr Bool was dismissive of the situation: “No, no. It was a light-hearted conversation because what I did was I left some gel packs at our squash court where I used to play squash as a gesture, and then a few weeks later the owner of the squash court said to me one of the members gave some feedback that a child was chewing on the pack, but not chewed through the pack at all.”79 [22] It is also necessary to understand that the assessment for the purpose of obtaining the approval from the TGA, is by self-assessment and compilation of an application form.80 And that prior to the time that this process was undertaken 74 T3–96.13–26. 75 T4–35.5. 76 T3–53.30. 77 T3–94.34–40 and [8] and [12] of the Defence. 78 T3–97.29. 79 T4–6.33–37. 80 See Ex 2 at tab 32. -- 19 of 61 -- 20 and the TGA approval obtained, the defendants had been manufacturing the Product with the labels and the markings on the Product, already in place.81 [23] Mrs Bool’s evidence on this issue was criticized as being largely and superficially supportive of the defence raised by her husband, in that she did not think that the Product was toxic because you would have to consume an entire large packet before it was fatal.82 It was contended that she was disingenuous in her evidence, in that despite stating that her interpretation of “toxic” was “poisonous”, she refused to concede that MEG was toxic, only accepting that she knew MEG was harmful and it was hazardous.83 And her evidence was further criticized as being evasive and vague as to whether she or her husband ever told the plaintiffs that MEG was hazardous or harmful: “Did you ever tell the plaintiffs that MEG was harmful?---I can’t recall. Did you ever tell them it was hazardous?---That would have been discussed, yes.. “ And did you tell them it was hazardous?---Robert would have told them hazardous, and I do recall Donald – Robert talking about the gel – not the gel, the MEG, that it was – it was important that – there was mentions of hazardous, and I can’t recall where. This was discussed many times, this product.84 …… And can you explain why on the packet it says, “However do not consume”? --- “The product was never intended to be eaten. It’s an injury product and it was supposed to be used as the contents in the pack to be either frozen or heated or put onto an injury site. And that’s why you put the “Do not consume” on it?---Yes. It’s not meant for eating.85 [24] It may be further noted that Mrs Bool gave the following evidence: “But you seem to suggest that within the 14 days that they had to purchase the business the Bool’s should have found out – sorry. Mr and Mrs – the plaintiffs should have found out that it was toxic?---No, I didn’t say that. I don’t think they should have found out it was toxic. They would have established exactly what we did with the information that we had that it was non-toxic at that period of time.”86 81 T3–63.45–T3–64.5. 82 T4–30–T4–33 and T4–45. 83 T4–26.26–42. 84 T4–37.45 to T4–38.4. 85 T4–33.25–31. 86 T4–39.26–30. -- 20 of 61 -- 21 [25] On the other hand and although, in the first instance, these are referred to in the written submissions for the defendants, under the topic heading: “Reliance”, the defendants raise some specific criticism of the case presented for the plaintiffs and particularly some aspects of the evidence of Mr Fenton.87 The essential contention is that prior to entering the contract and before settlement of it, the plaintiffs had access to all of the information relevant to the making of an informed decision to purchase the Business and from the point of settlement, possession of all of the relevant documentation, including the critical Material Safety Data Sheet (“MSDS”).88 More particularly and as may be accepted (except to the extent specifically noted otherwise), it is pointed out that the evidence establishes that: (a) At the Second Meeting, Mr Bool did make specific reference to and produce the documents which comprised the “TGA File” and that he emphasised the importance of that material.89 It may also be accepted that the critical MSDS was amongst those documents and passed into the possession of the plaintiffs, within that file, upon settlement. However the evidence of the plaintiffs is that their attention was not specifically drawn to a MSDS.90 (b) The plaintiffs were aware, just prior to settlement, that they would need to make their own application to the TGA, after their solicitor had entered into communication with the TGA during the due diligence process.91 (c) On 18 October 2007 at the request of the plaintiffs, Mr Bool emailed them some documents in word format. Mr Fenton confirmed he read those documents.92 (d) In respect of many of the material issues and particularly in respect of the composition of the gel in the product and the obtaining of their TGA approval, Ms Speidel deferred to Mr Fenton.93 87 Defendants written submissions at [81] – [104]. 88 Ex. 2 at tab 11 and see paragraph [34], below. 89 T3–72.27–45. 90 T2–63.25–46; T1–58.1–6. 91 Ex. 2 at tab 17. 92 T2–42.16–29. 93 T1–32.17–45; T1–33.1; T1–35.17–21; T1–36.6; T1–37.41; T1–40.44; T1–42.23–31; T1–44.27; T1– 45.31; T1–58.32; T1–59.11; T1–61.36; T1–62.24–37; T1–68.9–17; T1–69.32–43; T1–70.1–11; T1– 74.6–.13; T1–75.1–8; T1–80.39; T1–94.46; T1–95.15; T1–98.27–30; T2–7.9–14. -- 21 of 61 -- 22 [26] The plaintiffs’ evidence was generally criticised in terms of “repeated attempts to distance themselves from the MSDS and all knowledge of the nature of MEG call[ing] into question their credit as witnesses”.94 Mr Fenton’s evidence was specifically criticised as evasive and lacking credibility, by particular reference to the following considerations: (a) Despite him having, upon settlement, possession of the same documents upon which Mr Bool based his application to the TGA, Mr Fenton declared to the TGA that the Product complied with the essential principles and that he, personally, had available sufficient information to substantiate compliance with the essential principles and conformity with assessment procedures.95 The following questions are posed: “If that declaration was true the logical conclusion is that he had formed the view on the on the information that he had in his possession that the Product was non-toxic. He was not therefore relying upon representations made by the Defendants. If Mr Fenton did not consider the essential principles, the relevant guidelines and the relevant documents in his possession but nonetheless signed a declaration to the contrary how can his evidence be relied upon as a witness of truth?”96 (b) Mr Fenton’s explanation as to why he did not find the MSDS for MEG until March 2013 is not credible as:97 “a. He had the MSDS in his possession from 16 October 2007; b. It was in the box of documents. The documents are not voluminous. The evidence is that the TGA compliance material, the MSDS, material from Cryovac were placed in the same box. Mr Fenton admitted he had looked at other documents contained within that box such as the Cryovac material98 and the MSDS for other ingredients. Why would he undertake a search for documents in 2013 when he is advised about the Defendants application to deregister the corporate entities but not when: i. He receives a box of documents upon the settlement;99 94 Defendants’ written submissions at [88]. 95 Ex. 2 at tab 14. 96 Defendants’ written submissions at [92]. 97 Defendants’ written submissions at [101]. 98 T2–75.1–13. 99 T2–76.41–44. -- 22 of 61 -- 23 ii. He has read documents in conjunction with his TGA application October 2007 which refer to MSDS; iii. He receives deliveries of MEG and the Dangerous Material Shipping Documents. iv. He is advised of the reason and the need for a recall. Mr Fenton accepted he was aware of the concepts of MSDS when dealing with the TGA in 2008.100 v. The Plaintiffs seek legal advice in April 2009.”101 (c) Mr Fenton gave evidence that he had completed a Workplace Inspections Quality and Safety Compliance form.102 That document was called for but not produced. In direct contradiction of his earlier evidence, Mr Fenton subsequently said he had not in fact completed that document.103 [27] There is an issue that turns on credibility, in that the plaintiffs’ deny they received any MEG on settlement.104 The evidence of Mr and Mrs Bool was that approximately 150 kg of MEG was transferred into small containers to transport to the plaintiffs home. Mr Bool was cross-examined and explained why there would have been no reduction in the quantity of MEG from the stock in hand document prepared on 2 June 2007.105 Mrs Bool gave evidence in respect of a “stock in hand” document,106 as amended by her showing no change to the 150 kg of MEG. And she gave evidence that on the day of settlement she saw Mr Bool and Mr Fenton pump MEG out of the drum and into plastic containers which were then transported to the plaintiffs’ home.107 Some further context to this issue is that there are also differences as to the precise circumstances in which the first delivery of MEG to the plaintiffs occurred, on or about 22 October 2007.108 100 T2–79.7–13. 101 Ex. 2 at tab 24. 102 T2–49.31–46 103 T3–9.36–3–10.9-19. 104 T2–28.16–24. 105 T3–104.9–3–105.19. 106 T4–19.23–34. 107 T4–19.32–4–20.28. 108 T1–73.19–44; T2–28.16–2–30.10; T2–79.17–80–32; T3–81.36–44. -- 23 of 61 -- 24 [28] In the context of the evidence that the plaintiffs received two deliveries of MEG prior to the recall,109 accompanied by Dangerous Material Shipping Documents referring to an “Environmental Hazardous Substance”,110 and Mr Fenton’s involvement in the removal of MEG from drums prior to purchase,111 there is criticism as to lack of credibility in the plaintiffs’ evidence that: (a) they didn’t notice any warning stickers on the drums;112 or (b) receive or have regard to any MSDS that usually accompanied the shipping documents upon delivery of MEG.113 [29] It is only further necessary to note that some additional submissions were made about the cross-examination of Mr Fenton as to various documents he created or kept in his file in connection with the application for TGA approval he made in 2007,114 and suggestions raised as to the purported absence of production of such documents.115 Apart from noting that all of this was raised in the context of the evidence of Mr Fenton that he did not independently turn his mind to any of the things necessary for this application and rather just followed what had been previously done by the defendants,116 there does not appear to be any proper foundation laid in the evidence for considering what, if any, inferences might be drawn. This is because there was later reference made to the production by the plaintiffs of a file,117 and the subsequent cross-examination served only to confirm that Mr Fenton did not conduct his own independent exercise of evaluation.118 However, there is the retraction of the initial evidence that he had completed a Workplace Inspections Quality and Safety Compliance document.119 109 T2–79.17–18. 110 See Ex. 2 at tabs 12 and 21. 111 T2–56.32–43. 112 T1-54.23–24; T1–55.9–15; T2–57.5–1; cf: Exhibit 6. 113 It is necessary to note that this contention is not supported by the evidence. See: T 3-50.3-17 and T3-4.41 – 3.7.8 114 T2–49.24–2–52.45. 115 See defendants’ written submissions at [93]–[95]. 116 T2–49.14–25. 117 T3–2.1–45. 118 T3–7.40–3–12.3. 119 See para [26(c)], above. -- 24 of 61 -- 25 Conclusions [30] Largely, the criticisms of the defendants’ position and evidence should be accepted. Leaving aside those aspects of the conduct of the business in which she had been particularly involved and was concerned in demonstrating for Ms Speidel (such as the sewing of the pouches for the gel packs and the packaging of the Product for distribution), it is evident that Mrs Bool relied upon her husband and sought to support his position as to the nature and effect of the Product and the contents of the gel packs. [31] On the other hand and for the defendants, it is pointed out that the evidence relates to conversations occurring about ten years earlier and the inherent difficulty of precise recall of words used, given such a long interval. However, this is not a case that depends upon such precision and as may be noted, the dispute as to what was said is of relatively narrow ambit. [32] Despite some indication of the impact of the time lapse on precise recollections as to surrounding events and discussions, the evidence of the plaintiff’s should be accepted as more likely, in that and in the context of Ms Speidel specifically raising a query about the disclosure of expenses in the nature of protective equipment, Mrs Bool repeated the terms of an assurance, which is otherwise admitted to have been given at the earlier meeting by Mr Bool and as being entirely consistent with the way in which the Product had been marketed by the defendants and as also consistent with the way in which the Business was presented for purchase by the plaintiffs. The same considerations as to the lapse of time relate to the evidence of Mr and Mrs Bool and in these circumstances and having regard to the difficulties identified in the evidence of each of them, neither should be accepted as being the more reliable in this direct conflict with the evidence of the plaintiffs. [33] The criticisms raised in respect of the evidence of the plaintiffs were less directly related to the essential issue for present purposes and as to the representations upon which they contracted to purchase the Business. And, as will be noted again when dealing with other issues below, once it is determined that the plaintiffs were so induced to purchase the Business, they are then exposed to the consequences of any recall of the Product, including that which had been -- 25 of 61 -- 26 previously manufactured by the defendants and the prospect of reformulation of the thermal gel, irrespective of what they may have subsequently learned as to the characteristics of that gel. In any event and notwithstanding that it may be established that there were means available to the plaintiff to have discovered this, there was an absence of sufficient evidential foundation for concluding that they did, prior to the intervention of the TGA and which led to the recall and reformulation of the Product. [34] Although it should be noted that the objective context supported the evidence of Mr and Mrs Bool as to the MEG being included in the stock the subject of the Second Contract, it is, for reasons to follow, strictly unnecessary to resolve that issue in any assessment as to damages but it may be noted here that preference for the defendant’s evidence on this point, and in the context of the further evidence as to the complications as to a delivery of MEG shortly after settlement, in 2007, would not be a sufficient basis for not otherwise accepting the essential evidence of the plaintiffs as to the representations made to them. [35] The particular problem for the defendants and particularly Mr Bool, is that the evidence demonstrates that Mr Bool was well aware of the toxicity of MEG, as an ingredient of the gel in the Product. It was never put in issue that he was aware of the contents of the MSDS, which was amongst the records of the Business transferred with the sale of it and apparently relating to a delivery of MEG to the second defendant on or about 20 April 2004.120 That MSDS, under the heading: “2. HEALTH HAZARD INFORMATION”, contained the following information: “2.1 HEALTH EFFECTS – ACUTE Swallowed Harmful or fatal if swallowed. Estimated lethal dose for an average person is 100mL. May cause nausea, vomiting, diarrhoea. Can be absorbed causing kidney failure or liver damage. May effect the central Nervouse System. Advances stages may cause collapse, unconsciousness, coma and possible death due to respiratory failure. Toxicity follows 3-stage progression. (1) involves central nervous system effects including paralysis of eye muscles, convulsions and coma. Metabolic acidosis and cerebral swelling may also occur. (2) involves cardiopulmonary system with symptoms of hypertension rapid hear beat & possible cardiac failure (3) involves severe kidney abnormalities including possible renal failure. 120 Ex. 2 at tab 11. -- 26 of 61 -- 27 Eye Irritating to eyes. Produces irritation, characterised by a burning sensation, redness, tearing, inflammation, and possible corneal injury. Vapours may cause eye irritation. May cause painful sensitisation to light. May cause conjunctivitis. Skin Slightly irritation to skin. Inhaled May cause respiratory tract irritation. Irritation may lead to chemical pneumonitis and pulmonary oedema. Heated or misted substance may cause headache irregular eye movements, and possible coma. 2.2 HEALTH EFFECTS – CHRONIC Chronic inhalation and ingestion may cause effects similar to those of acute inhalation and ingestion. No Data Available. 2.3 FIRST AID Swallowed If victim is conscious and alert, give 2–4 cupfuls of milk or water to drink. Never give anything by mouth to an unconscious person. Get medical aid immediately. Induce vomiting by giving one teaspoon of Ipecac syrup. Eye Rinse the eye with water immediately. Continue to rinse for at least 15 minutes. Get medical attention if any discomfort continues. Skin Flush skin with plenty of soap and water for at least 15 minutes while removing contaminated clothing and shoes. Seek medical attention if irritation develops or persists. Inhaled Seek medical attention immediately. Remove from exposure to fresh air. If not breathing, give artificial respiration. If breathing is difficult, give oxygen. 2.4 FIRST AID FACILITIES Ensure an eye bath and safety shower are available and ready for use. 2.5 ADVICE TO DOCTOR Gastric lavage is indicated if significant quantities have been ingested in the previous 4 hours. Ethylene glycol is metabolised to oxalic acid. Oxalic acid will cause acidosis and will bind circulating calcium, leading to hypocalcaemia with tetany and renal failure from oxalate precipitation. -- 27 of 61 -- 28 Treat symptomatically based or judgment of doctor and individual reactions of patient. 2.6 TOXICITY DATA Oral LD50 = 5840 mg/kg (rat) Not listed as carcinogen by ACGIH, IARC, NIOSH, NTP or OSHA.” [36] In this context, it should be concluded that the evidence provides reasonable satisfaction, on the balance of probabilities, as to the conclusion that the representations made for the first and second defendants were objectively misleading and deceptive or likely to mislead or deceive. Quite apart from the apparent inappropriateness of the description of the contents of this device as being non-toxic, particularly in the context of the desired TGA approval, it suffices to note that a synonym for “toxic” is “poisonous” and that potential lethality is not necessary. As may be noted from the Macquarie Dictionary,121 the meanings of “poisonous” relevantly include: “1. Full of or containing poison. 2. Having the properties or effects of a poison.” And “poison” has the following meanings: “1. Any substance (liquid, solid or gaseous) which by reason of an inherent deleterious property tends to destroy life or impair health. 2. Anything harmful, fatal, baneful, or highly pernicious, as to character, happiness, or wellbeing….” [37] The competing contentions as to that issue are to be seen as encompassing the notion discussed by Gibbs CJ in the Parkdale decision.122 Whilst that passage is directed at the position of consumers exposed to product marketing, it is to be noted here that the concern is with representations made in the negotiations for the sale of a business which involved the marketing of a product and where the specific representations are properly viewed as assurances as to and the reiteration of the labelling and marketing of the product, including as to the contents of the gel packs, as non-toxic. In the Parkdale case, Gibbs CJ proceeded to further observe: 121 Fifth Edition. 122 See para [11] above. -- 28 of 61 -- 29 “The conduct of a defendant must be viewed as a whole. It would be wrong to select some words or act, which, alone, would be likely to mislead if those words or acts, when viewed in their context, were not capable of misleading. It is obvious that where the conduct complained of consists of words it would not be right to select some words only and to ignore others which provided the context which gave meaning to the particular words. The same is true of acts.”123 [38] As to the labelling and representation of the product and the contents of it as not being toxic, it is not simply a matter of assessment of the risk of misuse and some form of ingestion of any of the contents.124 And the accompanying notification as to the intended use of the Product and the unsuitability of the contents of the gel packs for consumption, do not relevantly detract from or clarify the essential representation that the contents were non-toxic. Moreover, it is clear that this position was the subject of specific enquiry by the plaintiffs in the negotiations for the purchase of the Business and in circumstances where that was advertised as a business which could be operated from home, on a part time basis and without prior experience. On the other hand Mr Bool presented as having considerable relevant experience,125 and was likely to have presented, as he largely did in giving evidence, as being confident and authoritative as to his views. [39] It is clear that the plaintiffs understandably sought information as to the experience of the defendants in respect of this established business and specific clarification as to the nature of the ingredients to be dealt with in the manufacture of the product. It should be accepted that in these circumstances, the rider in the representations and warning against the prospect of eating the Product, had the effect of reinforcing the nature of the representation that the Product, including the contents, was non-toxic and in a manner that was disarming and not calculated to clarify or in any way disabuse the effect of the representation that the contents of the Product were non-toxic. [40] As is pointed out for the plaintiffs, this is in the further context that the defendants contend that the plaintiffs could have found out (as opposed to the defendants actually telling them) that the contents of the Product were in fact 123 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199. 124 Defendants’ written submissions at [57] – [61]. 125 T1-24.44 – 1-25.27, 2-18.4-35, 3-41.10 – 3-43.23, 3-71.42 – 3-72.11 and 4-15.37 – 4-16.2 -- 29 of 61 -- 30 toxic, before entering into and completing the First and Second Contracts, because: (a) at the second meeting the plaintiffs were shown the TGA compliance file and were made aware of its importance; (b) during the due diligence period under the First Contract the plaintiffs had open access to all relevant documents in the defendants possession; and (c) before buying the business, the plaintiffs were given the opportunity to consult with the plaintiff’s commercial agent and a chemical engineer. [41] Subject to the potential application of s 82(1B) of the TPA, which is dealt with below, it is not a question as whether or not the plaintiffs were as vigilant or astute as hindsight might suggest they could or should have been. Rather, it should be accepted, as submitted for the plaintiffs,126 that given the defendants’ lengthy experience in the gel pack industry,127 and lack of any such experience on the part of the plaintiffs, it was reasonable for the plaintiffs to have believed and relied on the defendants’ clear and unambiguous representations that the contents of the gel packs were non-toxic. The plaintiffs had no reason to doubt the defendants on this issue and therefore it was reasonable for them to not make further inquiries, investigations or to search documents to check if the representations were true or not. The representations had their desired effect of disarming the plaintiffs of their concerns as to the nature of the Product. And it may be accepted that there is evident difficulty, if not disingenuousness, in the defendants’ allegation that the plaintiffs could have found out that the contents of the Product were in fact toxic before entering into and completing the First and Second Contracts, because: (a) At the second meeting the plaintiffs were shown the TGA compliance file and were made aware of its importance.128 But the only clear evidence is 126 Plaintiffs’ written submissions at [78] & [90]. 127 Mr Bool gave evidence of having manufactured about 175,000 gel packs over a 12 year period: see para [2(e)], above. 128 Defence at [22]. -- 30 of 61 -- 31 from the plaintiffs, that they were not specifically shown or had their attention drawn to the MSDS;129or (b) That during the due diligence period under the First Contract, the plaintiffs had open access to all relevant documents in the defendants possession; or (c) That before buying the Business, the plaintiffs were given the opportunity to consult with the plaintiff’s commercial agent and a chemical engineer.130 The defendants did not explain if or when they ever consulted “their chemical engineer” or why he had not warned them the MEG in their gel was toxic. It may be particularly noted that it was never clarified as to how consulting such an engineer would have assisted the plaintiffs to an understanding that the defendants sought to deny and resist in the context of the defendants own apparent reliance upon such resource. In context, these are properly to be viewed as circumstances and further representations supporting the acceptability of and reliance upon the First and Second Representations. [42] As Kirby J has observed: “The contravener is forbidden from asserting ‘You should not have believed me when I misled you’”.131 And as was observed in the course of him giving evidence, Mr Bool was likely to have presented, to the novices that the plaintiffs were, as knowledgeable and convincing as to his position. [43] In these circumstances and consistently with the findings to follow as to the actual reliance of the plaintiffs upon the objectively misleading and deceptive representations, it should be found that s 52 of the TPA was contravened by the corporate defendants and upon whose behalf the representations were made in the negotiations for the purchase of the Business operated by those corporations, as being misleading and deceptive in effect, from the perspective of a reasonable 129 T1–58.1–6; T1–59.12–15; T2–63.5–2–67.20 and cf: T3–73.10–3–74.37 and T4–16.27–4–17.8; T4– 26.45–4–27.5. 130 Defence at [19] & [31]. 131 I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 165 [182]. -- 31 of 61 -- 32 purchaser of that business and accordingly in the position of the plaintiffs in doing so. Reliance [44] Also, it should be accepted that there was reliance by the plaintiffs on the contravening representations. The plaintiffs, respectively, gave unchallenged evidence that they would not have entered into, or completed the contracts, but for the First and Second Representations, or if they had been aware that the Product or any ingredient was toxic or poisonous.132 In particular and consistently with her evidence as to the queries that she did raise with the Bools, Ms Speidel explained that since she and her husband would be operating the Business from their home she would not have been prepared to put the health of her family at risk. [45] The defendants place reliance on the following clauses of the First Contract133: “Clause 1.1: The Buyer ACKNOWLEDGES AND AGREES that save as are expressly set out herein no warranties or representations have been given or made by the Seller or by the Seller’s servants or agents in respect of the Property and any warranties and conditions other than those expressed in writing herein are hereby negatived and IT IS AGREED by the Parties that this sale is subject to no terms and conditions or representations other than those expressed herein in writing and the Buyer FURTHER ACKNOWLEDGES that the Buyer has relied solely on the Buyer’s own skill and judgment in entering into this Contract. Clause 1.2: Without limiting the generality of the provisions of the above Clause it is AGREED AND DECLARED by the Parties that the agreements provisions terms and conditions contained in this Contract comprise the whole of the bargain between the Parties and no further or other agreements provisions terms or conditions exist or apply. … Clause 6.1: This Contract is subject to the Buyer conducting satisfactory due diligence enquires in respect of the Business within 14 days from the date of this Contract (“the due diligence date”). In the event such due diligence enquiries are not satisfactory the Buyer may terminate the Contract by giving notice in writing to the Seller by 5.00pm on the due is the plaintiffs did not seek a warranty that any representations made by the 132 T1–43.1-21 and 2-35.42-44. 133 See Ex. 2 at tab 6. -- 32 of 61 -- 33 defendants were accurate but instead explicitly agreed those representations were “negatived” and the sale was subject to no representations other than those expressed in writing in the contract.” [46] The parties cannot exclude liability for misleading or deceptive conduct by means of a contractual term. As observed by Lockhart J in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No.1):134 “[I]t would be contrary to public policy for special conditions such as those with which this contract was concerned to deny or prohibit a statutory remedy for offending conduct under the Act.”135 [47] That reliance is further demonstrated in the evidence that: (a) Once the plaintiffs learnt that they would have to make their own application for an ARTG number, the response was that Mr Fenton contacted Mr Bool, who provided him with a copy of the materials he had relied upon for obtaining such registration, so that they could be copied.136 It may be noted that, in the context of the earlier general finding in respect of Mr Bool’s evidence and when pressed on this topic, his evidence only differed as follows: “And can you turn to the essential requirement 7.1 which was choice of materials. It’s about a quarter of the way through?---Seven-point-one, sir? Yes?---Yes. I have it. And you’ll recall that this is the document, I think, that you submitted to the TGA?---Nothing is submitted to the TGA. You compile your own documents out of the – the essential principal requirements. So this never went to the TGA. But this is something that you keep, and it supported your application?---That’s correct, sir. And for the choice of materials, you’ve said that the thermal gel used is non-toxic; correct?---Correct. And you also say that ingesting a large amount of the thermal gel would also be considered extremely remote?---That is correct, sir. 134 (1988) 39 FCR 546. 135 Ibid at 561. 136 T2–36.5–2–43.40 and T3–81.5–30. And see also Ex 2 at tabs 13, 14, 30–33. -- 33 of 61 -- 34 What about a small amount? Is that less remote?---It is remote. However, I did consider it, sir. You did consider it?---Yes. Not coming from a gel pack but because in our factory people have access to open gel. You didn’t consider it a less remote possibility that it might come out of a packet of gel that you’ve been distributing – the 175,000 packs?---No, sir, because, as I said, ad infinitum, it had never occurred before. There was no precedent to it. Now, you provided this document to Mr Fenton – it’s accepted, isn’t it – on the 18th of October 2007?---As in the essential requirements in hard copy, sir? No, this document that we’re looking at is an attachment to an email that you sent?---Yes. You accept that?---Yes, I – I emailed the attachments. And the purpose of that was so that he could rely on it to complete his application to the TGA?---It was so he could use it to form the basis of his own application. It was not so he could copy it. I put to you that you told him, “Just copy my application”?---No, sir. Because we’ve heard you say that would be a breach of copyright?---That’s where my mind is at, not being a lawyer.”137 (b) And that upon the intention of the TGA which precipitated the product recall conducted by the plaintiffs, they reverted to contacting Mr Bool and sought a meeting, which occurred on 15 September 2008, for advice or direction and assistance as to their position.138 The accessorial claim against the Third and Fourth Defendants [48] Section 75B(1) of the TPA provides that a reference to a person involved in a contravention shall be read as a reference to a person who: “(a) has aided, abetted, counselled or procured a contravention; 137 T3–97.3–46. 138 T1–41.10–1–42.31; T2–27.1–2–28.15; T3–84.7–3–85.30; T4–21.10–32. -- 34 of 61 -- 35 (b) has induced, whether by threats or promises or otherwise, the contravention; (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention” In Keller v LED Technologies Pty Ltd139 Besanko J (with whom Jessup J agreed) stated: “In a case concerning representations, the essential elements of the contravention are the fact that the representation was made and that, in a case such as the present, it was misleading or deceptive, or likely to mislead or deceive (s 52) or was false (s 53(a) and (c)). To establish accessorial liability it must be established that the relevant person knew the representation was made and the facts which made it misleading or deceptive, or likely to mislead or deceive, or false. It need not be shown that the relevant person actually drew the conclusion that the representation was misleading or deceptive, or likely to mislead or deceive, or was false.” [49] Further, it may be noted that proven knowledge of the lack of support for claims or representations made, whether in terms of contradictory material or the absence of an affirmative basis for them, may, in appropriate circumstances, provide a sufficient basis for a finding of knowledge as to misleading or deceptive characteristic of them.140 [50] The plaintiff’s further rely on the observations of White J in Australian Securities and Investments Commission v ActivSuper Pty Ltd (in liq) & Ors141 that: “Proof that a person had actual knowledge of each of the essential elements making up the contravention may be derived from direct evidence but more commonly will be a matter of inference from proven circumstances;”142 and “Actual knowledge may be able to be inferred from a defendant’s knowledge of matters raising suspicion, together with a deliberate failure to make the enquiries which may have confirmed those suspicions.”143 139 185 FCR 449 at 520 [336]. 140 Australian Competition and Consumer Commission v Danoz Direct Pty Ltd [2003] FCA 881 at [224] 141 (2015) 235 FCR 181 142 Ibid at 256 [400]. 143 Ibid at 256 [402]. -- 35 of 61 -- 36 And also, as stated in Rafferty v Madgwicks:144 “The existence of actual knowledge may be inferred from wilful blindness (see Australian Competition and Consumer Commission v IMB Group Ltd [2003] FCAFC 17 at [135]) or from dishonest or deliberate ignorance (see Giorgianni v The Queen (1985) 156 CLR 473 at 482-483, 495, 507-508).” [51] In the present matter, it is established that Mr Bool and Mrs Bool were relevantly present and each knew or must have known that the First and Second Representations were made. [52] As against Mr Bool, the plaintiffs point out that he: (a) was responsible for making the gel;145 (b) admits that the gel contained 50 litres of MEG per 220 litre vat of gel mixed (or 22.73%);146 (c) knew MEG was a hazardous chemical,147 and considered it was absolutely critical that no more than 100ml went into the Product;148 (d) said that he came up with the wording on the packaging149 (although he claimed not to know what the word “toxic” meant);150and (e) was aware of the fact that a child had chewed on one of the their gel packs in 2005,151 and yet did not reconsider his “well- reasoned” risk assessment that formed the basis of the defendants’ TGA approval for the Product, on the basis that the child did not actually chew through the pack and did not ingest any gel.152 [53] As against Mrs Bool, the plaintiffs point out that she: (a) had made the Product with Mr Bool for about 12 years;153 (b) she was a director and secretary of the first defendant Ozzz Lo Pty Ltd;154 144 (2012) 203 FCR 1 at [261]. 145 T3–53.15. 146 Defence at [24]. 147 T3–88.1–2. 148 T3–52.8-20. 149 T4–4–25.32-35. 150 T3–87.42–3–88.19. 151 T4–5.46–4–6.9. 152 T4–6.28–39. 153 Defence at [15]. 154 T4–22.1–22. -- 36 of 61 -- 37 (c) stated that the factory area is small and that everything was in quite close proximity;155 (d) told the plaintiffs that the product was not toxic but you wouldn’t want to eat it;156 (e) was aware that MEG was being put into the gel as one of the ingredients;157 (f) paid all the accounts, including those for MEG;158 (g) knew that MEG was stored in drums outside and away from their house and factory;159 (h) was aware before the business was sold that MEG was hazardous;160 (i) at the meeting on 11 September 2007, saw MEG being pumped from the drums into the plastic containers and then she saw “Mr Fenton tip that ingredient into the vat”.161 Accordingly Mrs Bool knew that MEG was a substantial ingredient in the Product. (j) was content to have a label on the Product that said the contents were non-toxic because she relied upon the fact that there had been TGA approval – “that’s what gave me my conclusions of my thoughts”. 162 (k) was aware of the fact that a child had chewed on the defendants’ gel packs in 2005.163 [54] Ultimately, the contention of the plaintiffs is that: “In these circumstances, Mr and Mrs Bool both either knew (or at the very least it can be inferred from the circumstances), or were wilfully blind to the fact that the Product was toxic or poisonous, or that it contained a poisonous substance.” [55] For the third and fourth defendants, emphasis was placed upon the underlying principle discussed in Yorke v Lucas:164 155 T4–17.15. 156 T1–27.2–12; T1–27.38–46; and T2–20.9–27 cf. T4–25.29–4–26.2 and T2–67.32–2–68.19 157 T4–25.34. 158 T4–34.1–4. 159 T4–14.37–4–15.5 and Ex 6. 160 T4–26.41–42. 161 T4–18.15–20. 162 T4–39–14–17. 163 T4–34.43–4–35.9. 164 (1985) 168 CLR 661 at [670]. -- 37 of 61 -- 38 “There can be no question that a person cannot be knowingly concerned in a contravention unless he has knowledge of the essential facts constituting the contravention ….. In our view, the proper construction of par. (c) require a party to a contravention to be an intentional participant, the necessary intent being based on upon knowledge of the essential elements of the contravention.” [56] As is the subject of considerable discussion in Medical Benefits Fund of Australia Ltd v Cassidy,165 it is the knowledge of the facts that make a representation misleading or deceptive, in the context of involvement in the making of the representation, rather than any subjective view or knowledge that the representation is to be so characterised, that is the issue. As was then noted,166 McPherson AJA had made the point in Heydon v NRMA Ltd,167 and in the context of the position of legal advisors in respect of the publication of a prospectus, that there would be engagement of s 75B if: “knowing as they would then have done that those expressions were used in a prospectus which would, and did in fact, issue to a vast number of people some of whom were not well educated or versed in the ways of business, they would be found to have intentionally counselled a contravention of s 52; or, alternatively, being aware of the essential facts which on this assumption made it misleading, to have been knowingly concerned in or party to that contravention. And notwithstanding: “it is true that they did not intend to mislead, and that they did not believe that that prospectus or those expressions in it would mislead anyone; but if they knew what was in the prospectus and that it was going to be published, they satisfied the provisions of s 75B.” [57] Here and where the third and fourth defendants were the makers of the misleading or deceptive representations, in their role as the officers and guiding minds of the first and second defendants, the application of s 75B, turns on the proof of the knowledge of each of them of the facts establishing the falsity or misleading or deceptive nature of those representations. [58] In the case of the third defendant, Mr Bool, it was never in issue in the proceedings that he was aware of the essential information contained in the 165 (2003) 205 ALR 402, in particular in the judgment of Moore J, with whom Mansfield J agreed. 166 Ibid at [6]. 167 (2000) 51 NSWLR 1 at 436. -- 38 of 61 -- 39 MSDS as to the toxicity of the MEG and consequently the gel contained in the Product. Indeed such an understanding is implicit in his assertion as to an understanding that it was critical that there be no more than the identified potentially lethal dose in any gel pack. That information provided a clear basis for an understanding that it was neither reasonable nor appropriate to label or represent the Product on the basis that the contents were not toxic. In any event, Mr Bool’s contentions that he did not understand “toxic” to mean poisonous and his attempts to maintain the defendants’ defence to this claim, must be regarded as disingenuous and unacceptable. The appropriate finding is that the third defendant has been knowingly concerned in the contravention of s 52 of the TPA. [59] However, the same finding should not be made against the fourth defendant, Mrs Bool. On the evidence, she was not demonstrated to have the same underlying knowledge of the composition of the gel product, or the qualities of the MEG. Whilst she was involved in the making of the misleading or deceptive representations, it was evident that her perspective was in supporting the position which had been determined by her husband. So much is reflected in her cross examination.168 And it is only necessary to note the following passages: “Would you describe that – the contents of that packet now as being non- toxic?---Not the – the – the large size, no, because you’d have to ingest the 400 mil for that to be toxic. So it would need “non-toxic” taken off the pack. And if it was half the size, would you be happy to put “non-toxic” – “contents non-toxic” on it?---Not in today’s reflection, no, because I think we can improve practice at all times. It would be false?---It’s not false in the sense because you’d have to ingest 400 mils for it to be toxic. Sorry, you said – I think in your evidence you accepted that “toxic” means poisonous. Do you accept that something can be poisonous without - - -?---Being fatal. - - - consuming a lethal dose?---Yes. So I would change the packaging if it was put to me as that, yes. And can you explain why on the packet it says, “However do not consume”?---The product was never intended to be eaten. It’s an injury 168 T4–26.25–4–39.36. -- 39 of 61 -- 40 product and it was supposed to be used as the contents in the pack to be either frozen or heated or put onto an injury site.169 … And when you say that they’re responsible or partly responsible for their losses because they didn’t carry out their due diligence, can you explain what you think they should have done? I’m not Mr Fenton or Ms Speidel. They were given opportunities with Wayne Thomas. Part of the compliance with the TGA takes you through – as – I haven’t done it. It seems quite onerous. Possibly, from what I gather, they would go back to between Mr Fenton and Robert that the TGA may not have been completed fully by Mr Fenton. That maybe – had he, he would have maybe known the product and the ingredients closer. I can’t really And if he had known them - - -?--- - - - speculate. Sorry – closer – you say he should have – they should have found out that the product was toxic? No, what they would have found out is that we sold them a product that was non-toxic and that they had – they had all the knowledge that we had about the information in regards to the ingredients. Well, I should say Robert, not myself. So you say the product was non-toxic, but I take you back to the gel. You now wouldn’t put – you’ve accepted that you wouldn’t describe it as being non-toxic now? Now. But you’re saying that they should have found out, are you, that the product wasn’t non-toxic? No, the information they had is the information we would have had. And the conclusion and what Robert had come to with all the information he had, following – and Robert was a very diligent man. He’s a very specific man that I believe – by complying with the TGA, to me, that communicated that we were fulfilling the requirements, given the registration number, that we had a non-toxic product. But you accept now, don’t you, that it’s not non-toxic? In hindsight now and with the updated information, yes. So the only thing they could have done to protect themselves was to discover that the product wasn’t non-toxic – i.e. that it was toxic? No, I think then it still leaves everybody in the same place. It was at that point in time the information that was given. It was indicated that this was a non-toxic product.170 … 169 T4–33.7–28. 170 T4–35.17–4–36.4. -- 40 of 61 -- 41 You’ve said that the – you knew that the MEG was harmful?---Hazardous, and then we went to harmful after we had conversations. You accept it’s harmful and hazardous?---Now I do, yes. And you accept now – sorry, I’m talking back before you sold the business?---I was aware that it was a hazardous chemical. But you were happy to put a hazardous chemical into the gel - - -?---Happy - - - - - - as part of the manufacturing process?---Happy is not a word I would use. I felt that Robert was very diligent and stringent in his TGA. I put a lot of - - - Please stop and just - - -?--- - - - reliance in that. Can you stop and just - - - HIS HONOUR: No, I’ll let the witness - - - MR GERBER: - - - answer the question. HIS HONOUR: No, I’ll let her continue, Mr Gerber. Just go on?---Thank you, your Honour. I put a lot of reliance in the TGA. I thought that was a government process, and by getting a registration approved us that we had a reputable, responsible product that was going on the market through pharmacies as a registered product. And we applied a worker to it, and we – Robert applied diligence. And we were invested in our product. We thought we had good integrity in what we were selling. Yes. MR GERBER: You were aware that MEG was being put into the gel. It was one of the ingredients?---I was. You were aware at the time before you sold the business that MEG was hazardous?---Yes. So you accept that the gel contained a hazardous material?---That’s correct. But you’re happy – no, I say content to sell the product and to have a label on it that says contents non-toxic?---I was convinced and relied upon the TGA that this was a compliant product.”171 171 T4–38.9–4–39.3. -- 41 of 61 -- 42 Negligent Misrepresentation [60] Although and in light of the findings made in respect of the claim made under the TPA it is unnecessary to do so, it is preferable to also deal with the alternative claim for negligent misrepresentation. That claim is pleaded on the basis that:172 (a) the First and Second Representations constituted advice from the third and fourth defendants to the plaintiffs (“the advice”). (b) at the time of giving the advice the third and fourth defendants knew or ought reasonably to have known that the plaintiffs would rely on the advice. (c) the third and fourth defendants knew, or ought reasonably to have known, that the plaintiffs would suffer damage and risk incurring economic loss if the advice was not accurate. (d) in the circumstances, the third and fourth defendants owed a duty to take reasonable care when giving the advice. (e) in reliance on the advice, the plaintiffs signed and entered into the First and Second Contracts. (f) in the premises, the third and fourth defendants breached their duty of care to the plaintiffs. [61] As was recognized for the plaintiffs, damages for pure economic loss are not recoverable if all that is shown is that the defendants’ negligence was a cause of the loss and the loss was reasonably foreseeable. Reference is made to Perre v Apand173 for the identification of the further factors that are required in determining whether a duty of care exists in pure economic loss cases: “(a) Was the loss suffered by the plaintiffs reasonably foreseeable? (b) If yes, would the imposition of a duty of care impose indeterminate liability on the defendants? (c) If no, would the imposition of a duty of care impose an unreasonable burden on the autonomy of the defendants? (d) If no, were the plaintiffs vulnerable to loss from the conduct of the defendants? (e) Did the defendants know that their conduct could cause harm to individuals such as the plaintiffs?”174 172 FASOC at [17]–[22]. 173 (1999) 198 CLR 180 at 231 [133] (McHugh J). 174 Plaintiffs’ submissions at [112]. -- 42 of 61 -- 43 [62] Those submissions contended that “vulnerability” is considered the most important of these factors and noted that this is in the sense discussed in the joint reasons of Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street Investments v CDG:175 “Vulnerability”, in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, “vulnerability” is to be understood as a reference to the plaintiff’s inability to protect itself from the consequences of a defendant’s want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant.” However, particular reliance is also placed on the observation of McHugh J, in Perre v Apand Pty Ltd,176 that: “Reliance may therefore be seen - for the purposes of duty of care - as an indicator of vulnerability: the plaintiff is especially vulnerable to the words and/or conduct of the defendant because he or she reasonably relied on the defendant. But that passage must be viewed in its immediately preceding context: “[124] Vulnerability will often include, but not be synonymous with, concepts of reliance and assumption of responsibility. The widely used concepts of ‘reasonable reliance’’ and ‘‘assumption of responsibility’’ have come under criticism. This Court has recognised that neither concept represents a necessary or sufficient criterion for determination of a duty of care, saying that commonly, but not necessarily, a duty will arise in cases which ‘‘involve an identified element of known reliance (or dependence) or the assumption of responsibility or a combination of the two’’. This statement provides an insight into why both reliance and assumption of responsibility have been rejected as a unifying criterion in cases of pure economic loss. Like proximity, reliance and assumption of responsibility are neither necessary nor sufficient to found a duty of care. [125] In my view, reliance and assumption of responsibility are merely indicators of the plaintiff ’s vulnerability to harm from the defendant’s conduct, and it is the concept of vulnerability rather than these evidentiary indicators which is the relevant criterion for determining whether a duty of care exists. The most explicit recognition of vulnerability as a possible common theme in cases of pure economic loss is found in the judgment of Toohey and Gaudron JJ in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords .” (citations omitted) 175 (2004) 216 CLR 515 at 530 [23]. 176 (1999) 198 CLR 180 at 228 [126]. -- 43 of 61 -- 44 [63] It is then submitted that, each of the answers to “the Perre v Apand questions” should be answered in favour of the plaintiffs and accordingly, and in establishing that the relevant duty of care arose, for the following reasons: “(a) it is self-evident that the defendants’ conduct was a cause of the plaintiffs’ loss and that loss was reasonably foreseeable. The inquiry involves considering what a reasonable person in the position of the defendant would have foreseen as potential risks associated with his or her behaviour; see Gleeson CJ in Perre v Apand at [10]. (b) the defendants’ liability as against the plaintiffs is determinate, given that they are “first line” claimants and their damages were foreseeable and can be realistically calculated. (c) recognising a legal duty of care would not interfere unreasonably with the defendants’ economic freedom and autonomy or the competitive operation of the market place because the defendants were not entitled to pursue their economic interests in a way that constituted a breach of the law, which they had done by making representations which where contrary to the TPA. (d) the plaintiffs were especially vulnerable to the words and conduct of the defendants because they reasonably relied on the First and Second Representations and were induced by them to purchase the Business. In other words, reasonable reliance constitutes vulnerability. The plaintiffs also refer to their submissions regarding reliance discussed above. (e) McHugh J in Perre v Apand at [132] considered that in addition to actual knowledge, there was no reason why recklessness or gross carelessness should not be a relevant factor in determining whether a duty of care was owed. For the reasons set out above, Mr Bool and Mrs Bool knew that the First and Second Representations were false (that the contents of the gel packs were toxic) or alternatively, they were reckless or grossly careless in their belief that the contents of the gel packs were non-toxic. In these circumstances, Mr and Mrs Bool must have known their conduct could cause harm to the plaintiffs or were recklessly indifferent as to whether their conduct would cause the plaintiffs harm.”177 [64] As to clause 1.1 of the First Contract, the plaintiffs contend that there is authority that makes it clear that in relation to negligence claims, exemption clauses must be construed strictly and that clear words are necessary to exclude liability.178 177 Plaintiffs written submissions at [115]. 178 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500. -- 44 of 61 -- 45 [65] For the defendants, emphasis is placed on the acknowledgement by McHugh J in Perre v Apand,179 that knowledge of a defendant that “its act will harm the plaintiff is virtually a prerequisite of a duty of care in cases of pure economic loss”. It is submitted that: (a) In essence, for a duty of care to arise the court would need to be satisfied that Mr and Mrs Bool knew the representations were false. (b) The foreseeability of harm must also be considered in light of the fact that there had been no previous incident of a person ingesting the contents of a gel pack.180 (c) Having regard to all the relevant circumstances the defendants did not owe the plaintiffs a duty of care. (d) Even if such duty were established the plaintiffs have not proven that the defendants breached it by reason of matters pleaded in the Further Amended Defence. Mr Bool will not have breached a duty of care by conveying his honestly held opinion even if his opinion turns out to be incorrect. Mr Bool’s evidence demonstrates he had reasonable foundation for his opinion. (e) The plaintiffs were not “vulnerable”. There were numerous other sources of information available to the plaintiffs including: (i) Contacting Wayne Thomas; (ii) Contacting another chemical engineer; (iii) Contacting the TGA; (iv) Contacting the supplier of the chemicals (Redox); (v) Reading the “important documents” to which they attention had been drawn. [66] Despite there being further issues raised in the pleadings in respect of this cause of action, it is only necessary to deal with the issue as to duty of care, also being the issue upon which the submissions for the plaintiff concentrated. In that regard it suffices to observe that in the circumstances of the transaction involved here and where there were obviously readily available means for the plaintiffs to independently satisfy themselves as to their concern about the contents of the product and the representations made by the defendants, the necessary vulnerability of the plaintiffs is not established. In particular, that is not 179 (1999) 198 CLR 180 at 230 [131]. 180 See the defendants’ written submissions at [59] – [60]. Although, for the plaintiffs there is reference to the warning inherent in the reported incident at the squash court. -- 45 of 61 -- 46 established by the mere establishment of the fact of their reliance on the representations and the finding that their doing so was within the bounds of reason in the circumstances. [67] Accordingly the plaintiffs would not have succeeded in their claim upon this alternative basis. Damages [68] For the plaintiffs, reliance is placed on the principles that: (a) the TPA and s 82 is to be construed so as “to give the fullest relief which the fair meaning of its language will allow.”;181 and (b) to satisfy the requirements of s 82(1), for a causal relationship between a contravention of section 52 and the loss or damage, it is enough to demonstrate that a contravention of a relevant provision of the TPA was a cause of the loss or damage sustained.182 [69] It may be further noted that s 82(1) of the TPA allows for recovery of damages by “a person who suffers loss or damage by conduct of another person that was done in contravention” of a relevant provision of that Act. In this regard it is to be further noted that: (a) In Henville v Walker,183 Gleeson CJ noted that s 82 of the TPA requires the Court “to select a measure of damages which conforms to the remedial purpose of the statute and to the justice and equity of the case.” And that the principles of assessment of damages at common law, in contract and tort, are not directly relevant but “may provide useful guidance as an accumulation of valuable insight and experience.” (b) All that is necessary is a causal link between the loss or damage alleged and the misleading or deceptive conduct.184 That is, the establishment of a sufficient and direct link.185 181 Mooloolaba Slipways Pty Ltd v Cashlaw Pty Ltd [2011] QSC 236 at [215]. 182 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 126–128 per Gaudron, Gummow and Hayne JJ. 183 (2001) 206 CLR 459 at 470. 184 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 510 & 512–513. -- 46 of 61 -- 47 (c) As to the necessary connection between the contravening conduct and the loss or damage, and rather than considering cause and effect in mathematical or philosophical terms, the inquiry is as to the influences upon the actions of the parties and causality may be established by any of a number of influential considerations, providing it has substantial rather than negligible effect.186 (d) Reliance upon the misrepresentation is not a statutory requirement. However and in Caltex Australia Petroleum Pty Ltd v Charben Haulage Pty Ltd,187 it was the absence of proof of reliance on an allegedly incorrect remediation report that led to the failure of the claim pursuant to s 52 of the TPA. And in Henjo Investments Pty Ltd & Ors v Collins Marrickville Pty Ltd (No. 1),188 Lockhart J observed that: “recovery under s 52 is founded by the applicant’s factual reliance upon the misleading and deceptive conduct of the respondent, although that conduct was not the only factor in the applicant’s decision…and also the applicant did not seek to verify the representations or did so inadequately and so failed to discover their falsity.” (e) As further noted by Lockhart J: For present purposes it is sufficient to say that a person claiming damages must show either that he has been induced to do something or to refrain from doing something which gives rise to damage or has been influenced to do or refrain from doing something giving rise to damage by the conduct contravening s 52.”189 [70] It is in this context, that the plaintiffs rely upon the unchallenged and uncontradicted report of an accountant,190 to claim a total of $331,124.00 in damages and as set out in Mr Thynne’s report, as follows: (a) Capital losses incurred by the plaintiffs of $120,034.00, calculated as: 185 McCarthy v McIntyre [1999] FCA 784 at [48]. 186 I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 120–122 (per Gleeson CJ) and 126–128 (per Gaudron, Gummow and Hayne JJ). 187 [2005] FCAFC 271 at [186] (Tamberlin, Kiefel and Emmett JJ). 188 (1988) 39 FCR 546 at 558–559. 189 Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40–950 at 50–378. 190 Ex. 1, Report of Mr John Thynne, Vincents Chartered Accountants, dated 17 August 2016. -- 47 of 61 -- 48 (i) the sum of $100,000.00, paid to the first defendant (exclusive of GST) pursuant to the First Contract; (ii) the sum of $12,000.00, paid to the second defendant (exclusive of GST) pursuant to the Second Contract; (iii) stamp duty of $4,102.27, incurred on the purchase of the Business; (iv) stock & equipment relocation costs of $217.71; and (v) legal fees and government charges for the loan, of $3,714.50.191 (b) Recall/rectification costs of $23,518.79,192 as associated with the recall of the Product including repurchasing the Product, advertising costs, legal costs, printing costs, freight costs and purchasing additional equipment.193 (c) Financing costs of $60,559.00, as the plaintiffs borrowed money from the Macquarie Bank to fund the purchase of the Business and incurred interest on that loan and bank fees from 2 October 2007 to July 2012.194 (d) Trading losses from operating the business of ($86,963.00). This is brought in as a negative figure and therefore in effect as profit or an overall gain from the operation of the business to 31 January 2016, after taking into account costs “implicitly” dealt with under other heads of loss.195 (e) Unrewarded labour costs of $213,975.00 and representing the gratuitous labour that the plaintiffs contributed to the Business over a 9 year period, based on a rate of $35.00 per hour at 15 hours per week, except for the year after the recall where 20 hours per week was adopted on the basis that the recall and related activities required a greater level of work to be undertaken.196 191 Ex. 1 at [4.2] and [5.2]. 192 Although the written submissions for the plaintiffs (at [139]) refer to an amount of $25,346.00, this is the amount calculated by Mr Thynne; see Ex. 1 at p 41 & cf: pp 5 & 19. 193 Ex. 1 at [4.3] and [5.3]. 194 Ex. 1 at [4.4] and [5.4]. 195 Ex. 1 at [4.5] and [5.5]. 196 Ex. 1 at [4.6] and [5.6]. -- 48 of 61 -- 49 [71] For the defendants and apart from specifically noting the observations of Gleeson CJ, in Henville v Walker,197the following observations in Netaf Pty Ltd & Anor v Bikane Pty Ltd, are noted: “We reiterate that, where a purchase has been induced by misleading conduct, it is not enough, in order to recover losses subsequent to the purchase, to prove that but for the misleading conduct or as a partial consequence of it, the agreement to purchase would not have been made; that is so in every successful application of that kind. It is not the law that in every such case the party held to have been engaged in misleading conduct (who may have acted quite innocently) becomes the insurer of the other's success and prima facie liable to indemnify him against the consequences of the purchase.”198 [72] For the defendants, it is correctly pointed out that it is for the Court and not Mr Thynne to assess any loss caused by the proven misleading conduct. And the approach is to effectively seek to undermine, at least in part, the basis and assumptions upon which Mr Thynne’s report is premised. Those contentions included that: (a) Upon acceptance of Mr Thynne’s nil valuation of the purchased business, it would have been an unreasonable failure to mitigate for the plaintiffs to have continued to operate the business once they became aware of the need for the recall and no losses incurred after this event should be allowed. Acting reasonably, they would have disposed of or closed the business at that time.199 (b) The plaintiffs “were looking to purchase a business that they could manage part-time and derive a net return.”200 The business continued to have value even after the recall. Mr Thynne’s opinion that there was no Goodwill associated with the business is not consistent with the evidence given by the Plaintiffs. Mr Fenton gave specific evidence when he was asked why he didn’t rebrand after the recall was clear “That’s what we paid $100,000 for.”201 197 See para [63(a)], above. 198 (1990) 26 FCR 305 at 308 (per Shephard and Pincus JJ). 199 Netaf Pty Ltd & Anor v Bikane Pty Ltd (1990) 26 FCR 305 at 313 (Wilcox J). 200 Ex. 1 at [3.1.1(vi)]. It may also be noted that they contracted and sued as trustees of a family trust. 201 T3–23.25–26. -- 49 of 61 -- 50 (c) Mr Thynne does not address the value of the equipment as at the time of the purchase.202 Mr Thynne does not address what equipment the Business presently has or the value of that equipment. Mr Thynne did not provide any proper basis for his opinion that if the equipment were sold it would had a negligible value. (d) The value of nil that Mr Thynne attributes to the stock transferred is based on a false premise that it was worthless as it contained toxic ingredients. On the evidence contained in the stock on hand documents,203 the only toxic material transferred was the MEG to the value of $312. (e) The best evidence of the difference between the price paid for the business and its true value on the basis that representations were false is directly quantifiable, being the Recall/Rectification costs quantified the Report in the sum of $23,519.79 (f) The Reformulation placed the plaintiffs in the same position as if the First and Second Representations were all true. And following the recall and reformulation of the Product the plaintiffs continued to trade.204 And it is pointed out that there is no evidence that the recall had any ongoing negative effect on the sales of the business: (i) It was accepted that prior to the recall the figure for sales achieved by the plaintiffs in the first 11 months of trading was $71,910, giving an extrapolated figure for 12 months of $78,447.10.205 (ii) The financial summary in the Report shows that, with the exception of a small reduction in the year ending 30 June 2009, sales increased in the years following the reformulation. (iii) Sales only began to drop off after Counterpoint lost their major customer and ceased trading.206 202 The best evidence of the value of that equipment is contained in the financial records found in Ex. 2 at tab 5, p 4. 203 Ex. 2 at tab 5, p 5 and tab 40. 204 T–3-30.1–2. 205 T3–30.4–25. 206 T3–33.4–14. See also Ex. 2 at tab 25. -- 50 of 61 -- 51 (g) As to the unrewarded labour costs, Mr Thynne relied upon the information supplied, indicating that they paid themselves a wage for the years ending 30 June 2009 and 2010.207 The Plaintiffs gave evidence they had not in fact paid themselves a wage and it was purely an accounting exercise.208 [73] It is further contended that: (a) The finance costs are not a loss which can be attributed to any conduct by the defendants. The plaintiffs did not need to borrow money in order to fund the purchase.209 And that where the plaintiffs are also seeking interest pursuant to s 52 of the Civil Proceedings Act 2011, allowing both would lead to double recovery; and (b) In the event the court accepts the opinion as to the true value of the Business at the date to of purchase being nil, to allow a claim for labour costs might amount to double recovery.210 [74] To the extent the plaintiffs prove that loss was caused by the defendants’ contravention of s 52, the defendants rely on the provisions of s 82(1B) of the TPA and contend that the plaintiffs have contributed to their loss because of their failure to take reasonable care, because: “a. Prior to entering into the contract the Plaintiffs failed: i. to properly consider the contents and importance of the documents that had been shown including in particular the MSDS for MEG; ii. to consider the warning labels contained on the drums of MEG; iii. to investigate or ask any specific questions about the Product and its ingredients including the fact that the Written Express Warnings made it clear the Product was not to be consumed; iv. to make any enquiries to the chemical suppliers; v. to make any independent enquiries of the TGA; vi. to contact the chemist. b. Upon signing the contract they agreed to express statements as to Reliance and Research; c. During the due diligence process the Plaintiffs; 207 Ex. 1 at [3.3.6] and schedule 4.8 (p 75). 208 T3–33.21. 209 T3–18.25. 210 Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd (No 2) [2009] WASCA 183 at [102]. -- 51 of 61 -- 52 i. Failed to carry out proper due diligence; ii. Do not contact Wayne Thomas; iii. Failed to make proper enquires of the TGA. They had caused their solicitor to make enquires and were aware prior to settlement they would need to make their own TGA application. They were either aware at this stage that the process was self-certifying or they should have been. It is information in the public domain and their solicitor was in communication with the TGA on their behalf. There is no evidence that the Defendants said anything to the contrary. The Defendants cannot be held responsible of the Plaintiffs misconception; iv. Failed to consider the “important documents” they had been referred to pre-contract. d. The Plaintiffs case is that the information in the Defendants possession (the MSDS) indicated that the Product was toxic. The Plaintiffs had access to the same information as was available to the Defendants. It is not the Defendants case, that MSDS proves that the Product was toxic. It is the Plaintiffs who assert this. If the Plaintiffs had taken reasonable care of their own interests they would have properly considered the information that was readily available to them. If they had done so and decided not to purchase the business they would have suffered no loss. e. In failing to take reasonable care of their own interest the Plaintiffs should shoulder some responsibility for any subsequent losses and any such damages as they are awarded should be reduced accordingly. f. Further and in any event, before the Plaintiffs manufactured any product, (product which was subsequently recalled) or made their application to the TGA the Plaintiffs had: i. all relevant TGA documents including the MSDS for MEG which were taken to the Plaintiffs home on 16 October 2007; ii. the documents emailed by Mr Bool on 18 October 2007. g. In the premises, the Plaintiffs manufactured a Product which was subsequently recalled. On the Plaintiffs case, (not the Defendants) they had in their possession a document demonstrating that the Product they were producing was toxic. In light of the Plaintiffs’ failure to reasonably consider the information in their possession any damages as may be awarded in respect of the recall and reformulation costs should be reduced to reflect the Plaintiffs share in the responsibility for the loss.”211 211 Defendants’ written submissions at [137]. -- 52 of 61 -- 53 [75] For the plaintiffs, the contended approach to the assessment of damages is particularly reliant on the approach taken by McMeekin J in WP Kidd P/L & Anor v Panwell Pty Ltd & Ors.212 However, the difficulty is that this reliance is particularly upon aspects of the application of relevant principles to the particular facts of that case and where the plaintiffs had suffered losses operating a hotel business purchased after reliance on misleading advice from a business consultant regarding the prediction as to the future profitability of the hotel. The business consultant was found liable under the TPA, however the consultant claimed the loss was increased due to the plaintiffs’ ineptitude in the management of the purchased business. It may be noted that as to the general principles that were applicable, McMeekin J said: “[140] The loss or damage that the plaintiffs are entitled to is that loss or damage suffered “by conduct” done in contravention of the Act. So long as the contravening conduct is a cause of the loss (in the sense that it “materially contributes”) that is sufficient: Henville v Walker,213 I & L Securities v HTW Valuers.214 [141] Damages are assessed not on the basis that the defendant must make good the representations or advice complained of but rather on the basis of making good the loss caused by the conduct in contravention of the Act. In most cases the appropriate guide is the measure of damages in tort: Kizbeau Pty Ltd v WG & BPty Ltd215 but damages claimable under s. 82 of the Act are not limited by such an analogy: Marks v GIO Australia Holdings.216 [142] The prima facie measure of damages recoverable under s 82 of the Act in a case where it is said that a business has been acquired in reliance on representations or advice that amount to contraventions of s 52 of the Act is the difference between the price paid and the real value of the business at acquisition date: Radferry Pty Ltd v Starborne Holdings Pty Ltd.217, Netaf Pty Ltd v Bikane Pty Ltd218. In my view that is reflected here by the capital loss claimed. [143] That consequential losses of the type that the plaintiffs’ claim here can be recovered is clear from comments in cases such as Gould v Vaggelas219, Marks v GIO Australia Holdings Ltd.220, and Netaf. Where the difference in value does not take into 212 [2007] QSC 373. 213 (2001) 206 CLR 459 per Gaudron J at [61]; per McHugh J at [106]. 214 (2002) 210 CLR 109 at p 128 [57]. 215 (1995) 184 CLR 281 at 290. 216 (1998) 196 CLR 494 at 501 per Gaudron J; at 510 per McHugh, Hayne and Callinan JJ. 217 [1998] FCA 1689. 218 (1990) 92 ALR 490 at p 493. 219 (1985) 157 CLR 215 at 221-222 per Gibbs CJ. 220 (1998) 196 CLR 494 at [48]. -- 53 of 61 -- 54 account the trading losses suffered it may be proper to make some allowance for those consequential losses. [144] The difficulty facing the plaintiffs once the lease was executed and business purchased was what to do in a loss making situation. The effect of the contravening conduct was to lead the first plaintiff into dealings with the vendors which Mr Kidd had guaranteed. Assuming no right to rescind as against the vendors then the choices facing Mr Kidd were stark – trade-on and try to recover ground, sell the leasehold which he tried to do and failed, or close the business and be sued on the lease contract and the guarantee. [145] In these circumstances it seems to me that restricting the first plaintiff to capital losses alone would in no sense compensate for the losses in fact sustained by the contravening conduct. [146] But for Mr O’Rourke’s endorsement of the hotel business I am satisfied that Mr Kidd would not have entertained the business and not committed the first plaintiff to the lease. I am satisfied that a significant loss flowed from the decision to purchase the Melbourne Hotel. The defendants’ breach has materially contributed to that loss. Quite apart from the decision to enter into the purchase the advice expressly endorsed the rent to be paid for the entire period of the contract. Given that the rent was the primary cost that converted the business from one earning a substantial profit to one that was marginal – without significant change to its trading results – the losses are sufficiently direct in my view whatever test be adopted.”221 [citations as per judgment]. [76] Subsequently McMeekin J identified the principles applicable to the contention as to inept conduct of the business, as follows: “[150] It is clear that Mr Kidd was not a particularly skilful publican. That does not mean that he cannot recover – the Act does not merely protect “the careful or the astute”.222 Once the causal link between injury and contravention be established then the claimant’s carelessness is irrelevant: Henville v Walker;223 I & L Securities.224 [151] There is authority for the proposition that losses referrable to the plaintiff’s ineptitude in the conduct of the business are not recoverable: Gould v Vaggelas;225 Henville v Walker;226 Tefbao Pty Ltd v Stannic Securities Pty Ltd.227 Various expressions have been used to describe the applicable test to adopt in to deciding 221 See I & L Securities per Gleeson CJ at p 121 [31]. 222 per Gleeson CJ in Henville v Walker at [13]. 223 (2001) 206 CLR 459 at 482 [66] per Gaudron J, at 505 [140] per McHugh J, at 507 [153] per Gummow J, at 510 [166] per Hayne J . 224 Per Gaudron, Gummow and Hayne JJ at p 126 [50]; per McHugh J at p 138 [92]. 225 (1985) 157 CLR 215 at p 267 per Gibbs CJ at p 222; Dawson J at p 267 – a case of deceit. 226 per Gleeson CJ at [31]. 227 (1993) 118 ALR 565 at 575 per Hodgson J. -- 54 of 61 -- 55 what conduct on the part of the plaintiffs would be sufficient to displace the reliance on the contravening conduct: a loss caused by the “intentional conduct” of the applicant;228 the plaintiffs’ “own conduct may be ‘so dominant’ in the causal chain as to constitute a novus actus interveniens”;229 it may be necessary to characterise the conduct as an “abnormal event”230 or “grossly unreasonable… a supervening cause”.231 [152] What seems plain is that cases where it is appropriate “to divide up the loss … and attribute parts of the loss to particular causative events are likely to be rare”.232 The crucial distinction is between conduct contributing to “part of the loss, in the sense of a discrete and separate portion of the whole loss, and playing a part in the sustaining of the entire loss”.233 It is only the former that cannot be recovered. For the defendants to succeed it is incumbent on them to disentangle any competing causes and demonstrate that the contravention did not materially contribute to some part of the loss claimed: Henville v Walker.234” [citations as per judgment]. However, it must be noted that, unlike the present situation, His Honour was there dealing with circumstances which had arisen in 2000 and authorities decided prior to the introduction of s 82(1B) to the TPA, in 2004. [77] Further and in his allowance of damages in the nature of “lost capital contributions”, McMeekin J proceeded on the following premise; “[169] Where a business has no value in the hands of the plaintiffs, lost capital contributions will be compensable. No submission was made to the contrary or that any particular item was not properly claimable.” And in respect of the allowance of recovery of operating losses, His Honour noted: “[174] No submission was made that the plaintiffs’ approach fell into the error referred to by Sheppard and Pincus JJ in Netaf Pty Ltd v Bikane Pty Ltd235 to the effect that such an approach rendered the contravener “the insurer of the other’s success and prima facie liable to indemnify him against the consequences of the 228 I & L Securities per McHugh J at p 141 [104]; Henville per Gaudron J at 483 [72]. 229 I & L Securities per McHugh J at p 136 [85]. 230 Henville per McHugh J at 493 [106]. 231 I & L Securities per Gleeson CJ at 119 [27]. 232 I & L Securities at p130 [62] per Gaudron, Gummow and Hayne JJ. 233 I & L Securities per McHugh J at p137 [89] and see Gaudron, Gummow and Hayne JJ at p130 [62]. 234 per Gleeson CJ at [41], per Gaudron J at [70], per McHugh J at [148]; Hayne J not deciding: [166]. 235 (1990) 92 ALR 490 at 494. -- 55 of 61 -- 56 purchase”.236 Presumably that was so because on the plaintiffs’ case the business that the first plaintiff purchased had no value to it and so the plaintiffs were properly entitled to both the capital costs expended as well as the consequential losses incurred.” [citations as per judgment]. Also and in respect of the recovery Mr Kidd’s “unrewarded labour”, His Honour noted: “[184] There is authority for the proposition that claims of this type should be restricted to that which might be considered to be effort additional to what the plaintiff may have expected to have put into the business in any case – that it is only the additional effort that is compensable: Cut Price Deli Pty Ltd v Jacques.237 That principle was applied in Carlton v Pix Print Pty Ltd.238 No submission was made to that effect here. Mr Kidd’s intention was that he would not be a hands-on operator at all. He intended to hand over the management of the hotel to his daughter and son-in-law when he was satisfied that it was profitable – which he expected at the outset. This situation never came to pass. I therefore see no reason to discount the amount awarded under this principle.” [citations as per judgment]. [78] The situation in the present instance differs and the defendants have identified some substantial points as to the approach adopted by Mr Thynne and relied upon by the plaintiffs as being legally and conceptually flawed. And there is specific reliance on the error identified in Netaf Pty Ltd v Bikane Pty Ltd and also the principle applied in Carlton v Pix Print Pty Ltd. [79] This is not a situation where the misleading and deceptive conduct related to the prospective or inherent profitability of the Business. Notwithstanding that it might be concluded that the plaintiffs would not have purchased it, if they had been informed as to the true toxicity of the MEG as a component of the Product, the evidence does not permit of a conclusion that the Business was, at the time of purchase, of no value in the hands of the plaintiffs, whether assessed on the basis of a “capitalisation of future maintainable earnings method” or otherwise. In particular and leaving aside the criticised assumption of Mr Thynne that the assets purchased from the first and second defendants had no market value, Mr Thynne recognised that his approach was designed to value the goodwill of the 236 Quaere where the principle has survived Henville and I & L Securities. 237 (1994) 49 FCR 397 at 404. 238 [2000] FCA 337 at [106] – [107]. -- 56 of 61 -- 57 business239 and his conclusion that there was nil goodwill or value in the purchased business, simply cannot be accepted in the context of an understanding that the TGA intervention and the consequent recall also extended to a number of the products of competitors in the market,240 and the following concessions of Mr Fenton: (a) that in the context of the recall and reformulation of the product, they had not sought to rebrand the product, even though, ‘on a google search… the first thing you see is the recall’, because: “We’d paid $100,000 for that brand. That was – that was what we were paying the money for, and the certification, and the recall – the – the changing the brand wouldn’t get us away from the recall.” …. That’s reinventing the wheel. What’s the point? Why didn’t we just start creating our own brand in the first place? …. That’s reinventing the whole product, the – the whole branding. That’s what we paid $100,000 for. …. How are we going to – how are we going to – and how are we going to get a broker to take on a new brand?”241; and (b) as to the importance of the relationship with the distribution agent or broker, Counterpoint, and through which about 95% of the business came.242 [80] In the present circumstances and where the principles discussed in Re Netaf Pty Ltd & David Marlow v Bikane Pty Limited, are appositely engaged, it is notable that Mr Thynne’s calculations as to the adjusted net operating profit before tax, demonstrates operating profitability for each period other than the financial year ending 30 June 2009 and in which the recall and reformulation costs are represented.243 And also notable that it is in the financial years ending 30 June 2014 and 30 June 2015 and therefore in the aftermath of the cessation of the important relationship with Counterpoint, due to that entity ceasing its business, 239 See Ex. 1 at [5.2.14] – [5.2.16] (p 19). 240 See Ex. 1 at pp 82-4 241 T3–23.10–29. 242 T3–19.32–45. 243 See Ex. 1 at p 70. And it should be noted that this is without taking into account the point raised for the defendants that there is some representation of mere book entries in respect of wages not drawn by the plaintiffs in some financial years. -- 57 of 61 -- 58 at the end of June 2013,244 where there is some marked decline in that profitability. The later circumstance is not an eventuality for which the defendants could be held liable. [81] Accordingly there is no basis established for allowance of the amounts sought as to capital losses and the cost of financing the acquisition of that capital. Whether viewed as action in mitigation of loss or in protection of their capital investment, the evidence does not permit a conclusion other than that the actions of the plaintiffs in recalling and reformulating the product was successful. Their case is not apart from that relating to the costs of the recall and reformulation directed at identification of any loss of the value of goodwill as any ongoing impact of the recall and fails to establish the essential point as it was formulated and as to a commencement position of nil value. [82] As to any additional damages, this is also an instance in which the proposition recognised in Cut Price Deli Pty Ltd v Jacques245 and Carlton v Pix Print Pty Ltd,246 are engaged and “it is only the effort additional to that which the purchaser could have been expected to have put into the business purchase that can be the subject of a damages award.” [83] For the defendants it is pointed out that the plaintiffs may have expected to and did put into the business in the order of 20 hours per week.247 The additional effort in the recall and reformulation was identified by Mr Fenton as being an additional 80 hours (40 hours for each plaintiff) per week, for a period of up to one and a half months or 6 weeks.248 Although and for the defendants there are criticisms of the adoption by Mr Thynne of a rate of $35 per hour for his calculation of unrewarded labour costs, his evidence in this respect was neither challenged nor contradicted and it is appropriate to adopt that figure. Accordingly, the further allowance for the value of additional effort in the recall and reformulation is 80 hours at $35 per hour for 6 weeks, or $16,800. 244 Ex. 2 at tab 25. 245 (1994) 49 FCR 397 at 404. 246 [2000] FCA 337 at [106] – [107]. 247 Ex. 2 at tab 1; T1–33.19–31; T2–25.20–2–26.46; T3–45.1–3; T3–87.15–25. 248 T2–26.15–40. -- 58 of 61 -- 59 [84] There was no challenge to the rounded amount of $23,519 in recall and reformulation costs. However, it is necessary to note that this represents only what Mr Thynne identified as the “out of pocket” expenses in this respect and does not include what he otherwise identified as the credits offered to customers and which he otherwise proceeded to “implicitly” take into account in his calculation of “trading losses”.249 Given the departure from Mr Thynne’s approach to this assessment of damages it is the total amount of recall and reformulation costs calculated by including the identified credits that should be allowed. That is an amount of $44,890.76.250 [85] Therefore, a total of $61,690.76 is established as the damages suffered by conduct done in contravention of the TPA. [86] Following this approach to the assessment of damages also tends to limit the scope of potential application of s 82(1B) of the TPA, to reduce them. And once it is determined that the plaintiffs were so induced to purchase the Business, they were then exposed to the consequences of any recall of the Product, including that which had been previously manufactured by the defendants and the prospect of reformulation of the thermal gel, irrespective of what they may have subsequently learned, or had the means to learn, as to the characteristics of that gel. [87] As exemplified by Argy v Blunts & Lane Cove Real Estate Pty Ltd,251 prior to the introduction of s 82(1B), a potential issue was as to whether the element of causation between misrepresentation and damage was severed by the intervention of such negligence as to the protection of an applicant’s interest, to allow a finding that the misrepresentation was not a real inducement to entering into the contract. And in rare cases, it may have been appropriate to attribute discrete and separate parts of the loss to particular causative events, rather than the more common position as to the contravening conduct partly contributing to an entire loss.252 249 See Ex. 1 at [4.3.4] (p 12). 250 See Ex. 1 at Schedule 4.2 (pp 37-41). 251 (1990) 26 FCR 112. 252 I&L Securities v HTW Valuers (2002) 210 CLR 109 at 130 [62] and 137 [89] (McHugh J). -- 59 of 61 -- 60 [88] Apportionment of responsibility pursuant to s 82(1B) for economic loss, requires that the defendants establish that: (a) Mr and Mrs Bool: (i) did not intend to cause the loss and or damage; (ii) did not fraudulently cause the loss or damage; and (b) the suffering of the loss or damage was in part due to the failure of the plaintiffs to take reasonable care; and (c) it is just and equitable to reduce recovery for the loss or damage to an extent having regard to the claimants’ share in the responsibility for that loss or damage.253 [89] It may be accepted that as contended for the defendants, the evidence does not permit of a finding that either of the Bools intended to cause the loss or damage. And the submissions of the parties simply do not engage as to the issue of excluding that they fraudulently caused the loss or damage.254 [90] However and even if it be assumed that the defendants did not fraudulently cause the loss or damage and accepting that in the context of the “due diligence” clause in the First Contract and the enquiries potentially open to the plaintiffs and particularly as to the discovery of the critical MSDS, it would not be just and equitable to reduce the recovery of the plaintiffs. [91] As has been accepted they reasonably relied upon the confident misrepresentation of the defendants and continued to rely upon that position even when it belatedly became apparent that they would need to obtain their own ARTG number. As has been found, they were disarmed by the misrepresentation. And in the relatively unsophisticated circumstances of the dealings and the unequal nature of positions of the parties, particularly in terms of Mr Bool’s experience with and knowledge of the Product and the Business, the failure of the plaintiffs to protect their own interests in this respect, pales into relative insignificance. 253 An example of the application of a cognate provision now contained in s 137B of the Competition and Consumer Act 2010 (Cth), is in Merost Pty Ltd v CPT Custodian Pty Ltd [2014] FCA 97. 254 Noting that the issue may simply be whether or not Mr Bool’s conduct in the misrepresentations was dishonest, in the circumstances of his knowledge of the true nature of the MEG as a component of the product: R v Cushion; ex parte DPP (1998) 150 ALR 45; [1999] 1 Qd R 92. -- 60 of 61 -- 61 Interest [92] The evidence is that the recall and reformulation costs were substantially incurred and the additional hours also worked, by December 2009 and therefore it would be appropriate to allow interest on the assessed damages for a period of 9 years. [93] For the plaintiffs the contention is for the application of the rate of 5%, by analogy with the application of that rate on a “conservative basis” in Mooloolaba Slipways Pty Ltd v Cashlaw Pty Ltd.255 For the defendants, it is pointed out that the claimed rate was not pleaded.256 However, the only contended consequence is that “the appropriate rate is that applicable to s 58 of the Civil Proceedings Act 2011”.257 [94] By s 58(3) of the Civil Proceedings Act 2011, it is provided that: “The court may order that there be included in the amount for which judgment is given interest at the rate the court considers appropriate for all or part of the amount and for all or part of the period between the date when the cause of action arose and the date of judgment.” In the circumstances, it is appropriate to allow interest at the rate of 5% per annum, on $61,690.76, for 9 years. That is an amount of $27,760.84. Conclusion [95] According there will be judgment for the plaintiffs in the amount of $89,451.60 including $27,760.84 in interest: (a) Against the first and second defendants, for contravention of s 52 of the Trade Practices Act 1974 (Cth); and (b) Against the third defendant, pursuant to s 75B(1)(c) of the Trade Practices Act 1974 (Cth), for being knowingly concerned in that contravention. [96] The parties will have the further opportunity to make submissions as to costs. 255 [2011] QSC 236 at [237]. See plaintiffs’ written submissions at [146] – [147]. 256 Cf; UCPR 150. 257 Defendants’ written reply at [25]. -- 61 of 61 --