HOME$2 coffee machines scam case
It was supposed to be “a cost free exercise” – sell just eight cups $2 coffee a day, or your money back. But the collapse of the Sydney-based Perfect Coffee Company has left hundreds of business with debts that threaten their future.
They believed they had signed a six-month lease contract that was later altered to 60 months with a finance broker. The written contract, however, merely “reserved the right” to cancel the agreement and/or re-assign the machine if it did not make a profit.
The PCC went into liquidation in January with about one million in debts. Some of the business owners were seeking help from AHL Legal, who claimed back their losses succefully.
Below is the judgment:
IN THE LOCAL COURT
AT BURWOOD No. 1516 of 2005
BETWEEN GE COMMERCUL CORPORATION (AUST)
PTY. LTD.
Plaintiff/Cross‑defendant
AND HONG YU YANG (trading as Waratah Yang's
Supermarket)
First defendant/cross‑claimant
AND TENG 01 ZHANG (trading as Waratah Yang's
Supermarket)
Second defendant/cross‑claimant
REASONS FOR DECISION
The plaintiff finance company sues for rental payments due under a written contract with the defendants. A salesman known as Richard Soo acted for a coffee machine company, Evendwise, and provided a machine for use in the defendants' small supermarket. Soo made representations to the defendants broadly to the effect that a trial period of six months would be allowed, and that the machine would not cost them anything. He completed finance applications which they signed. The defendants initially pleaded non est facturn in relation to those, but did not press that defence, which in any event could not succeed because the defendants were careless in not making further inquiries as to the nature of the documents they signed. In all or most that it did, GE acted through the agency of Alliance. The defendants filed a cross‑claim asserting these things, amended in the course of the hearing, and based on alleged unconscienability and misrepresentations under the Trade Practices Act.
Soo said that the defendants' payments (almost $300.00 per month) would come from their bank account and be reimbursed. They were in fact so made and reimbursed, from Evendwise, for the first six months. It was after that first six months when they ceased to receive reimbursements, and when they had sought to return the machine, that the defendants became concerned.
The defence relies on the Trade Practices Act, alleging breaches of Part V constituted by uconscienability and by false representations.
The plaintiff essentially says that if Soo made false representations to the defendants, or indeed if anything he did smacked of unconscienability, he did so solely as agent for the coffee machine company. Mr. Wilson of counsel for the plaintiff says that Soo had nothing to do with his client and did no more than help the defendants to fill out their own finance application, and doubtless to send it in to the plaintiff. He therefore argues that the plaintiff was at arm's length from the defendants and from Soo. Mr. Wilson's written ubmissions were helpful.
Ms. Welshman of counsel appeared for the defendants.
A necessary arm of the defendants' reasoning is that the plaintiff is estopped from denying the representations made by Soo, in that Soo was invested with ostensible authority. Although not put in terms of estoppels that is how the defendants' arguments must be treated. Ms. Welshman argues that Soo was an agent for the plaintiff, and the appropriate agency if it exists at all is that of ostensible authority, which is based on estoppel.
The salesman Richard Soo was not able to be found. There is no evidence to contradict what the defendants say regarding their conversations with him. I accept their evidence, and I accept that the representations of which they complain were made. Given that their evidence is not inherently implausible and is not contradicted, I take the view that I would be bound to accept it in any event. However, I do not need to go that far since I in fact believe the defendants.
I will deal later on with the features of the matter which support the notion that the plaintiff GE did in fact deal with Soo and allow him to contract (in the indirect sense that it armed him with its finance documentation and allowed him to go forth and sign people up, and that it accepted the benefit of the contract so entered into by him. What follows immediately below is predicated on the assumption that it did do that.
The question is whether, by arming Soo with the application forms and by accepting them when sent in, the plaintiff is estopped from denying that Soo was invested with authority to contract generally and to make representations. At page 528 of Dal Pont, Law ofAgency, the author suggests one should look to see whether there is a reasonable expectation on the part of the other contracting party (the defendants in our matter). Dal Pont suggests that "if those circumstances would lead a reasonable person to expect that the principal (the present plaintiff) had authorised the agent to act, then the principal can properly be said to have made a representation to that effect".
Although the principal must be shown to have known of and acquiesced in the agent's professing to act on its behalf, Dal Pont points out that where a principal has invested an agent with a particular office, the principal cannot deny knowledge of the appearance of authority which the office may give to third parties. The author cites an interesting Canadian decision, Dale v. Manitoba, (1997) 147 D.L.R. (4 1h ) 605. In that case university staff represented to disadvantaged student groups that government funding would continue for their entire degree program. The government had allowed the university to administer the program. The Manitoba Court of Appeal held the university staff to be agents of the government for the purposes of the program vested with ostensible authority to bind the government to it. The court thought that it was incumbent on the government to give clear instructions on the full implications of changes to the program, which was not done.
In the present matter, GE allowed Soo to go about making contracts of the kind made here. Soo was invested with an office, in that he was armed with blank contract application or offer forms and permitted to present them to customers. It is, or at least appears to me to be, a normal incident of such an office that as such an agent Soo was entitled to make representations of the kind alleged here ‑ the main representation being that the arrangement would not enter into effect until after a trial period of six months. This does not seem to me to be much of a leap to make. The Canadian court had no difficulty inferring that university staff who had no more than a general power to administer a student scheme were thereby clothed with apparent authority to represent that the scheme would last not just for the term or year in which enrolment occurred but for the whole duration of the degree. So here, Soo might be thought to have been invested with authority to represent that a contract of finance would not commence until after a trial period had elapsed.
It is just as significant that when the forms were sent in GE accepted the offer when it ought to have known of the risk that a representation of a trial period of six months had been agreed on (I am entitled to take that view because GE had been accepting similar offers for other customers, the defendants having given evidence of that occurring amongst some of their friends).
It is true enough that the ostensible authority of an agent cannot be created merely by what the agent himself says or does, although that will be relevant. The principal (GE) must have done something to endorse that authority. In Crabtree‑ Vickers v. Australian Direct Mail (1975) 133 C.L.R. 72, at 78, justices Gibbs, Mason and Jacobs JJ said ‑
There are circumstances where the actual representation of authority may be made by the agent but in such cases it will be found that the relevant representation is made by the principal ... either by a previous course of dealing or by putting the agent in a position from which it can be inferred that his actual representation of authority in himself is in fact correct.
Again there is a parallel with our own matter. Soo by his conduct in producing the application for finance forms, and by completing them and sending them off, represented that he had authority from GE to attend to the incidents of finance, which included making a representation that the whole arrangment would be on trial for six months. GE, by allowing him to engage in that behaviour, and by its acceptance of the offer when it knew that others had been the subject of similar representations, put Soo in a position from which it could be inferred by the defendants that his representation of authority to act for GE was genuine.
I believe it is reasonable to view the ability to represent that there would be a trial period as a normal incident of the contact (not contract) made by Soo with the defendants, armed as he was with the power to make a sale and with the application forms for finance. Comparisons abound. Lawyers, for example, who on the surface have no power in a law suit to do anything more than lead evidence and make submissions, have an ostensible authority to settle the action on behalf of their clients. Insurance agents bind their principals in respect of those matters on which the customer could reasonably have been expected to rely ‑ although such liability is by statute. Persons selling motors cars bind the true owner if the true owner has armed them with indicia of title such as keys and registration papers. That, too, is now codified by statute, but the principle existed long before the Sale of Goods Act came into operaton.
To make GE liable for Soo's representations, including his oral representation that the coffee machine and the contract would only be on a trial for the first six months, it is of course necessary that the defendants should have acted on it, and acted to their detriment. However, in this case the detriment and reliance are both self‑evident. It is both plain to any reasonable observer, and must in fact have been subjectively plain to the defendants as well as Soo, that they took a potentially loss‑making machine and its attendant finance only because for a six month trial period they were not at risk. The uncontradicted evidence was that they doubted there was a market at all in their very small shop for sales of coffee from such a machine. Beyond doubt, without the benefit of that assurance they would never have entered into a contract that bound them for five years.
I now turn to the question whether Soo was indeed armed with the application forms by GE (through its agent Alliance) and permitted to canvass customers. One might usefully ask a number of rhetorical questions, which arguably lead to powerful inferences being drawn that GE'okayed'the missions of Soo to win customers and endorsed his contracts by accepting them.
The first is that one must ask how Soo got the application or offer forms? It is possible that he got them by accident, such as finding them somewhere, but that is too fanciful to accept. Is it reasonably possible that he pretended to be a customer and went in to GE and took away some forms? That too probably will not wash, because the evidence was that other businessmen were experiencing similar problems to those encountered by the defendants ‑ the language of the male defendant's affidavit making it tolerably clear that those others had such problems not with other companies or not just with other companies, but with the plaintiff ‑ and it is unlikely they all got their application forms that way. In any case, unless he stole the forms, he directly or indirectly must have got them from GE, and by providing them GE armed him with the ability to represent himself as an agent of the company. The fact of Soo or some persons obtaining such application forms was something of which GE must have been aware. GE must have known that those other businessmen as well as the present defendants were being presented with application forms.
An inference that it must have done so is strengthened by considering a second question, a question as to what GE must have imagined was the origin of the completed forms. If they arrived by some anonymous means such as the post, without any covering letter from Soo, GE must have been put on inquiry how the defendants got them (without a file or a contact person within GE itself or its agent Alliance ‑ if there was no such file that fact would itself raise questions, and if there was one what must it have shown to GE about the origin of the customer and of the contract). Did it then think to ring the defendants (and if it did it would soon have discovered their limited English)? Did it conduct any follow up with them? (If it did, again their limited language skills would have been obvious). Did it pay any commission to Soo or to anyone? Did GE, indeed, provide the application forms in the first place to Evendwise or to Soo? If it did not, must it not have occurred to those in GE that such contracts in relation to Evendwise must have originated with someone who had some sort of authority or capacity to offer GE finance to customers? Evendwise certainly appears to be a likely source of information for GE. Soo primarily worked for Evendwise, so one would expect GE to inquire whether Evendwise salesmen were using GE or Alliance finance applications in their work, and if they were where they got them from.
One does not need to answer all those questions in the affirmative to recognize that it is highly unlikely that the offers made by customers to GE were made without its knowledge or its collaboration, although most must be answered in the affirmative at some level of likelihood. Those that must be answered that way include the question whether GE had a file showing the original contact with the defendants (whether before the application forms were received, or after), how its officers imagined the completed forms originated unless introduced to the company by Soo, and how Soo got the forms in the first place, as well as the question whether GE did contact Soo or Evendwise if the forms arrived anonymously. And once GE became aware that other customers were having problems such as those faced by the defendants it should have contacted the latter and "given clear instructions about the full implications" (to pick up the language of Dale v. Manitoba). It should have done so before accepting the defendants' offer. Those other customers had suffered such problems before the dealing with the present defendants.
When throughout I speak of GE having probably done something such as contact Soo or give him the application forms etc., I include Alliance. Alliance acted as its agent, and anything Alliance did must be imputed to GE.
I should say that it would have been helpful to have had evidence from GE or from Alliance as to how the application forms got into Soo's hands, and all those related matters such as whether there was a file kept which chronicled Alliance's or GE's contact with the defendants, I draw a Jones v. Dunkel inference from the failure to adduce it. The plaintiff could not lead evidence from Soo (because it couldn't find him), but it likely could have ascertained how its application forms got into his hands and how it received the completed forms back from him. The provenance of its forms was a matter peculiarly within its knowledge and was information not likely to be available to the defendants. From time to time the superior courts have said that Jones v Dunkel inferences do not provide a substitute for evidence and in effect merely entitle one to feel more comfortable about accepting an issue on which there is some evidence. However, that is not always so. In Bootle v. Kettlewell, unreported, 25' November, 1993, the Court of Appeal made it plain that in circumstances where a witness must be thought to have deliberately refrained from giving evidence of which only he could speak (as happened here, because only GE could know how the finance forms got to Soo and what happened when they were returned duly completed) one may draw a more robust inference.
Having regard to those considerations, I find that GE did know of its application forms being used by Soo, and it accepted the offers made. Being aware that salesmen such as Soo were using its finance facilities it must have allowed that to happen, and it must be estopped from denying that Soo had the authority to make the representation that he did regarding a six month trial period. That misrepresentation attracts damages under section 82 of the Act. In the circumstances, the only possible appropriate measure of damages is the amount of the defendants' liability under their contract with the plaintiff, and the defendants accordingly succeed in their cross‑claim in the same dollar amount as their obligation to pay the plaintiff that amount, with the net result that the one cancells out the other leaving the defendants with no obligation to pay anything to the plaintiff.
I agree with the defendants that the actual terms of the plaintiffs misrepresentation are as set out in the handwritten amendment to the cross‑claim ‑ that is, that the documents signed would not attract liability to the defendants regardless of any profit from coffee sales, and that the agreement between the parties provided for a trial period of six months when in fact the written agreement did not make any such provision.
I should say, of course, that the plaintiff was always bound to succeed on the claim itself. The defendants having abandoned the non est factum defence, their assertion of misrepresentation necessarily sounded only in damages on a cross‑claim and never constituted a valid defence.
Finding as I do that the defendants must succeed in their cross‑claim on the basis of misrepresentation, it is strictly not necessary for me to consider unconscienability. However, section 5 1 AC of the Trade Practices Act contains a prohibition on unconscienable conduct, in broader terms than that concept is understood in the common law, and in this matter there is a strong argument that the defendants' inability to understand the English language finance documents attracts the operation of that section. Soo spoke to them in Mandarin, but the documents were in English. In my view, GE spoke through the medium of its agent Soo (although not through Evendwise in any way, notwithstanding the pleading of the cross‑claim), and acted unfairly in persuading them to sign up to a draconian contract which they did not understand and which was not in their native language. I find that it acted unconscienably and its action attracts the same damages as misrepresentation under section 82.
There will be judgment for the plaintiff on the claim in the sum of $12,952.15 against both defendants, and judgment for the defendants on the cross‑claim in the same amount.
The matter can be listed for mention on some convenient day if desired to set down a short hearing as to costs. If the parties can reach agreement on costs, they may write to the Court and say so, whereupon they need not attend but to save further expense I will make the order they seek. At present, the matter is set down for 4' December, but the parties need not wait for that date if they wish to list it earlier.
By agreement, these reasons are provided by email to the parties' advisers.
DATED this 30' day of October, 2006.
(W. G. Pierce) (Magistrate)
