All Fasteners (WA) v Grant Caple Pty Ltd & Ors (No.2)
[2004] FMCA 948
•10 December 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ALL FASTENERS (WA) v GRANT CAPLE PTY LTD & ORS (No.2) | [2004] FMCA 948 |
| TRADE PRACTICES – Misleading and deceptive conduct – representation in business profile – whether misleading and deceptive – whether reliance and loss arising – liability of director – whether actual knowledge – s.75B of Trade Practices Act 1974. |
Trade Practices Act 1974, ss.52, 75B, 82, 87(2)(a)
Corporations Act 2001, s.436A
Real Estate and Business Agents Act 1978
Fair Trading Act 1987, s.10
Family Law Act 1975
All Fasteners (WA) (a firm) v Grant Caple Pty Ltd & Ors [2003] FMCA 430
Yorke v Ross Lucas Pty Ltd (1983) 68 FLR 268
Yorke v Lucas (1985) 158 CLR 661
Compaq Computer Australia Pty Ltd v Merry (1988) 157 ALR 1
Pereira v Director of Public Prosecutions (1989) 82 ALR 217
ACCC v Michigan Group Pty Ltd (2002) FCA 1439
Dale Coast Pty Ltd v Guardian International Pty Ltd (2003) WASCA 142
Clarke Equipment Australia v Covcat Pty Ltd (1987) 71 ALR 367
Petera Pty Ltd v EHE Pty Ltd (1984) 7 FCR 375
ACCC v Cadbury Schweppes Pty Ltd (2004) FCA 516
Semrani v Manoun (2001) NSWCA 97
Alpine Holdings Pty Ltd v Warwick Entertainment Centre Pty Ltd (2003) WASC 53
Deputy Commissioner of Taxation v Clark (2003) NSWCA 91
Hanville v Walker (2001) HCA 52
I & L Securities Pty Ltd v HJW Valuers (Brisbane) Pty Ltd (2002) HCA 41
O’Neill v Medical Benefits Fund of Australia Ltd [2002] FCAFC 188
Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242
Petera Pty Ltd v EAG Pty Ltd (1984) 7 FCR 375
| Applicant: | ALL FASTENERS (WA) (A FIRM) |
| Respondents: | GRANT CAPLE PTY LTD (ACN 058 483 686), GRANT CAPLE, PERFORMANCE BUSINESS SALES (A FIRM), KEN HALL and MICHELLE CAPLE |
| File No: | PEG 263 of 2002 |
| Delivered on: | 10 December 2004 |
| Delivered at: | Perth |
| Hearing Dates: | 4 & 5 May 2004 |
| Date of Last Submissions: | 7 May 2004 |
| Judgment of: | McInnis FM |
REPRESENTATION
| Counsel for the Applicant: | Mr A Rumsley |
| Solicitors for the Applicant: | McKie & Associates |
| Counsel for the Respondent: | Mr T Darbyshire |
| Solicitors for the Respondent: | Kott Gunning |
ORDERS
That there be judgment for the applicant against the fifth respondent.
That the counterclaim be dismissed with no order as to costs.
That the issue of loss and damage including any amount of set-off be referred to further mediation to be conducted by a Registrar of the Court appointed by the Registrar of the Court on or before 28 January 2005.
In the event that the outstanding issues are not resolved at mediation the application be listed for mention at 9.30 am on 10 February 2005.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 263 of 2002
| ALL FASTENERS (WA) (A FIRM) |
Applicant
and
| GRANT CAPLE PTY LTD (ACN 058 483 686), GRANT CAPLE, PERFORMANCE BUSINESS SALES (A FIRM), KEN HALL and MICHELLE CAPLE |
Respondents
REASONS FOR JUDGMENT
In this matter an application was filed on 20 December 2002 claiming damages against four respondents pursuant to s.82 of the Trade Practices Act 1974 (the TPA) arising from conduct whereby it was alleged the respondents are in breach of s.52 of the TPA. In the alternative, a declaration was sought that an agreement to purchase a business as a going concern between the applicant and Grant Caple Pty Ltd (the first representative) dated 16 May 2002 ("the agreement") is void pursuant to s.87(2)(a) of the TPA. Further relief is sought by way of a direction that the first respondent authorise the release to the applicant of $40,000 held on trust by a company known as "All Probably Settlements Pty Ltd".
Ultimately, the applicant relied upon a document entitled "Re Amended Statement of Claim Pursuant to Order of McInnis FM Dated 26 February 2004" setting out the details in relation to the parties and claimed misrepresentations. It is appropriate to note that on 4 February 2003 the court made orders in this matter including an order that the application be stayed against the first respondent and/or the administrator of the first respondent until further order. A voluntary administrator of the first respondent had been appointed on 20 January 2003 pursuant to s.436A of the Corporations Act 2001.
On 19 March 2003 orders were made by the court that judgment be entered for the applicant against the second respondent in default of filing a response and that damages be assessed by the District Registrar of the Court in Western Australia pursuant to rule 18.01 of the Federal Magistrates Court Rules 2001 (FMC Rules). On 17 April 2003 orders were made by consent that the claim against the first respondent be dismissed.
Orders were made by this court on 30 September 2003 that the applicant be granted leave to join Michelle Caple as a fifth respondent. Reasons for judgment were delivered in that matter (see All Fasteners (WA) (a firm) v Grant Caple Pty Ltd & Ors [2003] FMCA 430).
As a result of that history of the proceedings as against the other respondents, it is clear that the claim now pursued before this court is against the fifth respondent.
In the "Re-Amended Statement of Claim" it is noted that the background of all of the parties, as indicated earlier, is set out in some detail. In brief terms, the first respondent was a company engaged as a stockist and seller of a range of nailing and stapling hardware to the building, cabinet making and furniture making business. The second respondent, Grant Caple, was a director of the first respondent at all material times, and the third respondent, Performance Business Sales (the firm) was claimed to be a partnership constituted by a number of companies carrying on business as business agent for the purposes of the Real Estate and Business Agents Act 1978. The third respondent it is claimed acted as agent of the first respondent in relation to the sale of the first respondent's business per the applicant. The fourth respondent, Mr Ken Hall, who is claimed to be a business agent also for the purpose of the Real Estate and Business Agents Act and at all material times was an employee of the third respondent responsible for the sale of the first respondent's business.
In the current pleading as against the fifth respondent a number of elements are raised which may briefly be summarised as follows:
·The first respondent conducted its business from premises at unit 4 42 Farall Road, Midvale, being lot 4 on strata plan 20101 contained in certificate of title volume 1888 folio 563 ("the premises").
·The second respondent is and was at all material times director and shareholder of the first respondent from 22 December 1992 and a registered proprietor of the premises as joint tenant with the fifth respondent from 16 June 1995.
·
The fifth respondent is and was at all material times a shareholder of the first respondent from 22 December 1992, a director of the first respondent from 1 March 1993 and a registered proprietor of the premises as joint tenant with the second respondent from
16 June 1995.
Relevant law
When the Court dealt with the issue of joinder of the fifth respondent reference was made to relevant principles which at that time had been referred to simply for the purpose of determining whether there was an arguable claim by the applicant against the fifth respondent. There was no dispute then or now that the applicant must prove the fifth respondent was aware or should have been aware of the essential facts which give rise to the alleged contravention of the Trade Practices Act (see Yorke v Ross Lucas Pty Ltd (1983) 68 FLR 268 at 272) affirmed on appeal by the High Court in Yorke v Lucas (1985) 158 CLR 661 at 666-669. I accept for the present purposes that it is not necessary for the applicant to prove that directors had actual or constructive knowledge of the essential facts that gave rise to the contraventions as alleged.
It is otherwise relevant to note that knowledge of the fifth respondent may be inferred from the circumstances (see Compaq Computer Australia Pty Ltd v Merry (1988) 157 ALR 1). I accept and apply the decision of the High Court in Pereira v Director of Public Prosecutions (1989) 82 ALR 217 where the Court states at 220 the following:
“ ... a combination of suspicious circumstances and failure to make inquiry may sustain an inference of knowledge of the actual or likely existence of the relevant matter. In a case where a jury is invited to draw such an inference, a failure to make inquiry may sometimes, as a matter of lawyer’s shorthand, be referred to as wilful blindness.”
It is also relevant to re-state paragraph 303 from the decision of Dowsett J in ACCC v Michigan Group Pty Ltd (2002) FCA 1439 where the Court states the following:-
“It is quite possible that the act of a natural person respondent on behalf of a corporation will constitute a contravention of the Act by that corporation, and yet the natural person respondent will be found not to have been knowingly concerned in that contravention. In the case of representations as to existing facts, this is because it is not necessary to show that the respondent corporation knew of the misleading nature of the statement in question, but knowing involvement predicates such knowledge on the part of the relevant natural person. The matter is even more complex in the case of representations as to future matters. A representation on behalf of a corporation will constitute a contravention if the corporation fails to show reasonable grounds for it. However a natural person respondent bears no onus of proof ..... It will be necessary for ACCC to demonstrate that such a person knew that the representation was made; and either knew that it was misleading; or knew that the corporation had no reasonable grounds for it.”
Reliance is placed upon s.75B of the TPA to establish the fifth respondent’s liability under s.52 of the TPA. Section 75B which may be read in the light of the authority of Dowsett J in ACCC v Michigan Group provides as follows:-
“(1)A reference in this Part to a person involved in a contravention of a provision of Part IV, IVA, IVB, V or VC, or of section 75AU or 75AYA, shall be read as a reference to a person who:
(a) has aided, abetted, counselled or procured the contravention;
(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.
(2)In this Part, unless the contrary intention appears:
(a) a reference to the Court in relation to a matter is a reference to any court having jurisdiction in the matter;
(b)a reference to the Federal Court is a reference to the Federal Court of Australia; and
(c)a reference to a judgment is a reference to a judgment, decree or order, whether final or interlocutory.”
Applicant’s submissions
The applicant’s primary submission was that the evidence taken in its entirety provides sufficient to ground the inference that the fifth respondent had the requisite knowledge for the purposes of s.75B of the TPA to establish her liability for conduct of the first respondent in contravention of s.52 of the TPA.
Reliance was placed upon the requisite knowledge being derived from the decision of the Court in ACCC v Michigan Group namely that the representation was either misleading or that the corporation had no reasonable grounds for making it.
The applicant’s secondary submission was that the fifth respondent engaged in conduct in contravention of s.10 of the Fair Trading Act 1987 by the conduct of her agents the first, second, third and fourth respondents and by her own conduct.
The applicant’s submissions dealt with the following issues:-
·The relevant transactions
·Contravention of s.52
·Disclaimer of provisions
·Reliance on the report
·Section 75B actual knowledge of Thailand stock
·Section 75B actual knowledge of no retirement
·Section 75B actual knowledge
·Section 75B inference of knowledge
·Contravention of s.10 of the Fair Trading Act 1987
·Vicarious liability under the Fair Trading Act 1987
·Direct liability under Fair Trading Act 1987
·Damages under s.82 TPA
·Loss in relation to Thailand stock
The relevant transaction
It was submitted that the first respondent acted in relation to the sale of the business through agents namely the second, third and fourth respondents and is thereby liable for the action of those agents. The transaction as a whole included the sale of the first respondent’s business, the lease of the premises at which the business was carried out which was owned by the second and fifth respondents jointly (the premises) and the assignment of leased motor vehicles to the applicant (the transaction).
At the time of the transaction it was noted that the premises were owned by the second and fifth respondents as joint tenants and the agreement of both proprietors was therefore required before a lease hold interest in the premises could be granted. Any agent acting in relation to the lease of the premises it was submitted was acting for both the fifth and second respondents.
Reference was made to the fifth respondent’s evidence in cross examination whereby the purchase price received by the first respondent from the applicant was used to pay out a mortgage of the second and fifth respondents on the premises ahead of paying creditors of the first respondent. Subsequently the fifth respondent received the whole of the premises under a binding financial agreement pursuant to the Family Law Act 1975.
It was submitted by the applicant that on the evidence the fifth respondent had taken the benefit of the transaction.
Contravention of s.52 of the Trade Practices Act
The representations relied upon were set out in paragraph 6 of the Re-Amended Statement of Claim as follows:-
“6.In or about May 2002 the first respondent through its director, the second respondent, its agent the third respondent and its agent’s employee the fourth respondent, may representations to the applicant in relation to the business of the first respondent (‘the representations’) including that:-
6.1The business had a real potential for further growth and profit;
6.2The average monthly sales, were and would continue to be, between $58,000 to $65,000 per month;
6.3Ron McCaughan the 58 year old sales representative was leaving the business to retire and would not be continuing in an active sales position in the industry or otherwise;
6.4A suitable replacement sales representative was available who had had experience in the industry and knew the business.
6.5The first respondent had developed customer loyalty through regular visits by the sales representative and was successful because it was a contact business where customers are visited, orders taken and personal relationships developed;
6.6Direct calling by sales staff accounted for approximately 80% of total sales of the fifth respondent;
6.7The business could continue to service existing customers, notwithstanding the departure of the sales representative;
6.8The broad customer base of the business sheltered it from sales down turns that might occur from competitor activity;
6.9Nails imported from Thailand which were of no less quality than those of other suppliers would provide substantially better profit margins;
6.10The value of the stock would not exceed $45,000;
6.11There was no or no significant slow moving or redundant stock;
6.12The cost of the stock was unlikely to come to $40,000;
6.13The business of the first respondent could maintain an annual net profit of no less than $77,000 per annum;
6.14The first respondent, the second respondent and the fifth respondent were not aware of any circumstances likely to adverse affect the trading position of the business of the first respondent;
6.15The business had stock on consignment from FJ House Pty Ltd which would continue for the business and provided a significant opportunity and cash flow benefit for the business;
6.16FJ House Pty Ltd provided 31% of the stock sold by the first respondent;
6.17Stock purchased by the first respondent from Thailand was an opportunity to increase the profit of the business because of the substantially higher profit margins of approximately 30% of that stock;
6.18The rental of the premises was reasonable and at market value for premises of that type;
6.19There was no issue in relation to the consignment stock that should concern the applicant and as Travers Caple was married to the daughter of the manager of FJ House, FJ House would not take the consignment stock away anyway.
6.20The business would comfortably support an owner who was content to keep the business ticking over and selling to and servicing existing customers without a high level of personal input.
6.21Development of expansion strategies had estimated potential to exceed $25,000 in monthly sales; and
6.22Regardless of whether a potential buyer was a novice to the industry, taking over the reigns should be no more difficult than taking over the reigns of a well trained horse.”
Paragraphs 6.1, 6.2, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.13, 6.14, 6.16, 6.20, 6.21 and 6.22 are all claimed to be set out in a document prepared by the third respondent entitled “Business Report All Fasteners (WA) Pty Ltd” (the report) and “Agreement to Purchase A Business (as a Going Concern)” dated 16 May 2002 (the agreement). Other representations are claimed to have been made by oral statements between the second and fourth respondents at a meeting with Glen McKenzie of the applicant and in oral statements made by the fourth respondent in meeting with Mr McKenzie and Teresa McKenzie of the applicant during May and June 2002. The applicant otherwise relies upon what are described as failure to disclose a number of material facts.
It was submitted that the representations and non disclosures relate materially to problems with the sales representative employed by the first respondent, stock purchased from Thailand, a consignment stock arrangement where the supply of the first respondent namely FJ House Pty Ltd and the ongoing performance of the business. It was argued that as the agreement signed by the applicant on 16 May 2002 was subject to a number of conditions that any representations made prior to the agreement becoming unconditional had a continuing effect until 18 June 2002. That included continued failure to disclose material facts.
It was submitted in the circumstances that where the second respondent and fifth respondent were aware that McCaughan was going to work for a competitor, it was misleading to represent that the “current sales representative has indicated his intention to terminate employment on 28 June 2002 (page 36 Exhibit A2) or “retiring on 30 June 2002” and “would not be continuing in an active sales position in the industry or otherwise”.
The representations made in relation to the retirement of McCaughan are to be read, it was submitted, in conjunction with further representations made in the business report (Exhibit A13) including “with such a broad [customer] base it would be difficult for competitors to make serious inroads in a short time frame” and the first respondent “has developed a customer loyalty through regular visits by the sales representative”.
The applicant further submitted that in circumstances where a sales representative with more than 27 years experience in the industry had indicated there were problems with stock from Thailand, that stock was unable to be sold or was returned for credit or replacement it was misleading to represent that it “provides substantially better margins for profit, early evidence is that this imported product is of no less quality than other suppliers”.
Further, it was submitted that where the manager of a major supplier had stated that it was “considering taking the consignment stock and agency away” and the statement had been made more than once with the first respondent then it was misleading that the “facts that the business had stock on consignment from FJ House was a huge bonus” and that there was a “consignment contract currently in place”. In the alternative it was submitted that a failure to qualify the statement about the consignment contract currently in place by express reference to the limited nature of the rights was misleading or deceptive (see Dale Coast Pty Ltd v Guardian International Pty Ltd (2003) WASCA 142 at [45] to [50].
Further, it was submitted that it was misleading to represent that “the business can maintain an annual net profit of no less than $77,000 per annum” and that the first respondent “is not aware of any circumstances that are likely to adversely affect the trading position of the business”. That point was further emphasised by the price at which the applicant bought the business namely $150,000 and the price it sold the business for 16 months later namely $37,692.19.
Disclaimer provisions
It was submitted and I accept that there are ample authorities to suggest that a party cannot contract out of the provisions of the TPA (see Clarke Equipment Australia v Covcat PtyLtd (1987) 71 ALR 367 at 371; ATPR 40-768 and Petera Pty Ltd v EHE Pty Ltd (1984) 7 FCR 375; (1985) ATPR 40-605 per Wilcox J at 46,887).
Reliance on report
The applicant submits that the evidence of both Teresa and Glen McKenzie is that they read the report and contents and it was a cause of their action in purchasing the business. The report it was submitted is a marketing device analogous to the labelling which was the subject of ACCC v Cadbury Schweppes Pty Ltd (2004) FCA 516. It was submitted that whether the time spent reading the report was of short duration or not, the important evidence was whether or not it was read and in the present case the evidence is that it was read and understood and not given merely a fleeting glance and that the reading of the report was decisive.
Section 75B of the Trade Practices Act: Actual Knowledge of Thailand Stock
Reference was made to the fifth respondent’s affidavit evidence and in particular the following points:-
·“Ron McCaughan did, on at least one occasion tell me that he thought that some of the product from Thailand was rubbish” (paragraph 22.2 Exhibit R2);
·“On many occasions Rob McCaughan expressed his dissatisfaction about the product which was brought in from Thailand” (paragraph 22.1 Exhibit R2)
Reference was also made to the McCaughan affidavit sworn 20 February 2003 (Exhibit A9) where he states that “It appeared some of the nails were okay but the other product was rubbish. I told Michelle Caple she should call Grant in Thailand to get a credit note for it”. McCaughan further states in the same affidavit that “the product from Thailand just sat in the factory for the months until I left”.
It is noted that in her affidavit evidence Michelle Caple regularly was involved in the business and her task would be to reconcile accounts at the end of each month and pay end of month creditors. The Thailand according to the evidence of Glen McKenzie were purchased in or about November 2001 by the first respondent from a partnership constituted by Michelle Caple and Grant Caple.
Reliance was placed upon Ken Hall’s evidence of a second meeting with the fifth respondent where discussions occurred in relation to the sale of the business and under cross-examination Mr Hall stated the meeting involved significant discussion of stock issues and stock lines. A third meeting at which the fifth respondent was present took place on 4 April 2002 and at no time was Hall told about the stock from Thailand being of inferior quality.
The applicant submitted that by 4 April 2002 the Thailand stock had been at the first respondent’s premises for more than 4 months and it follows that the fifth respondent would have done four monthly reconciliations while the product just sat at the factory for months.
Accordingly it was submitted that the fifth respondent had actual knowledge for the purposes of s.75B of the TPA.
Section 75B of the Trade Practices Act: Actual Knowledge of No Retirement
It was submitted that the fifth respondent was present at a meeting with Ken Hall on 4 April 2002 together with Grant Caple at the first respondent’s premises where Hall was told that the first respondent’s current sales representative McCaughan was “in his 60’s and retiring on 30 June 2002”. This would appear to be in the context of what McCaughan states in paragraph 17 of his affidavit (Exhibit A9) where in early April 2002 he met with Grant Caple and the purpose of the meeting was to give one month’s notice and to advise Mr Caple that McCaughan was leaving to work for Trade Power commencing on the first Monday in May 2002. In the same affidavit McCaughan states that “Grant asked me if I would stay on as a sales representative until his sold the business”. According to McCaughan, Trade Power as a supplier of a wide range of tools including nailing and stapling tools was in competition with the applicant and this was known to Grant Caple (see paragraph 27 of the McCaughan affidavit). It was noted by the applicant in submissions that the fifth respondent claims she had no recollection of whether Mr Hall had been told that McCaughan was retiring and could not say if it had been said in her presence. The fifth respondent’s silence at the meeting with Ken Hall and Grant Caple in relation to McCaughan was, it was submitted, an endorsement of Grant Caple’s representation (see Semrani v Manoun (2001) NSWCA 97).
Both in relation to the Thailand stock and the retirement of McCaughan it was submitted on behalf of the applicant that the evidence established the fifth respondent had actual knowledge that the representations made were misleading or to the extent they referred to future events that there were no reasonable grounds for making them (see ACCC v Michigan Group Pty Ltd (2002) FCA 439). The fifth respondent was silent in relation to the issues of the Thailand stock at three meetings and in relation to the misleading representation on the retirement of McCaughan. The silence it was argued was in circumstances where Hall was being provided with information to be communicated to the potential purchasers of the business and in the report Hall had explained the information was “crucial in the sale of the business”. The fifth respondent knew this and it was submitted took no steps to correct it and therefore liability under s.75B of the TPA is established (see Alpine Holdings Pty Ltd. v. Warwick Entertainment Centre Pty Ltd (2003) WASC 53 at [264]).
Section 75B of the Trade Practices Act: Inference of Knowledge
In the alternative it was submitted that on the evidence the inference is available that the fifth respondent had actual knowledge of all the representations made and that they were either misleading or to the extent they referred to future events were made without a reasonable basis. Reliance was placed upon the role of the fifth respondent as owner of the premises and director of the first respondent. It was argued that it is a feature of the Corporations Legislation of Australia that directors are expected to participate in the management of the corporation (see Deputy Commissioner of Taxation v Clark (2003) NSWCA 91 at [116]). It was argued that the fifth respondent attended meetings and had been involved in the appointment of the agent to sell the business and had assisted in providing the agent with information to be passed on to potential purchasers including the report.
As I understood the submissions for the applicant the breakdown of her relationship with Grant Caple meant that there was a greater urgency about disposing of the business and it was noted she had told Ken Hall that “she wanted the business sold as soon as possible as her relationship with Grant Caple was at and end”. The fifth respondent was at the business premises almost every day to assist her son Travers Caple between January and March 2002 and was then able to communicate with her son in relation to issues of the business and to do so on numerous occasions, according to the applicant’s submissions. She had failed in relation to both her affidavits and the defence to deny any knowledge of the representations as alleged and the evidence it was submitted supports the inference that the fifth respondent had actual knowledge of the misleading or deceptive conduct complained of by the applicant.
Fair Trading Act Contraventions
It is not necessary to refer to in detail the reliance upon the Fair Trading Act by the applicant for reasons that will become apparent in this judgment.
Although damages are not the subject of determination at this stage of the proceedings, it was submitted on behalf of the applicant that the representations as pleaded have caused the applicant to enter into the transaction and accordingly have thereby been a cause of any consequential loss (see Hanville v Walker (2001) HCA 52 and I & L Securities Pty Ltd v HJW Valuers (Brisbane) Pty Ltd (2002) HCA 41). A suggested break in the chain of causation based upon the failure of the applicant to employ a second sales representative was refuted by the applicant. The applicant’s case it was submitted is that the conduct of the applicant after taking over the business is not such as to break the chain of causation.
It was submitted that if liability of the fifth respondent is found in relation to even one of the representations by way of example of the Thailand stock or sales representative then the fifth respondent would be liable for the all of the applicant’s losses on the basis that each representation was a cause of the applicant purchasing the business and the losses that followed. The applicant rejected any suggestion by the fifth respondent that payment to the applicant in full and final settlement of claims against the first respondent and its voluntary administrator of $15,641.93 meant that the applicant suffered no loss. It was submitted in the alternative that the payment was a commercial decision in relation to settlement of a dispute as a result of which the applicant gave up any entitlement it had to recover damages from the first respondent.
Fifth Respondent’s submissions
It is argued correctly by the fifth respondent that in relation to the representations concerning McCaughan, the Thai stock and problems with F J House that the fifth respondent’s defence can do little more than put the applicant on to its proof on those issues.
As to representations on future matters it was submitted there is an obligation on the applicant to indicate its intention to rely upon s.51A of the TPA before it can rely upon the reverse onus set out in that section (see O’Neill v Medical Benefits Fund of Australia Ltd [2002] FCAFC 188). It was further argued by the respondent that in the absence of an express pleading or an indication that s.51A will be relied upon the mere fact that representation as to future conduct or events do not come to pass does not make then misleading or deceptive notwithstanding that the applicant has relied on them and has altered her or his position on the faith of them (see Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242).
In dealing with the representations it was submitted by the respondent that the Court should focus on those representations made prior to the execution of the agreement. Representations made after the execution of the agreement can have no relevant effect even if they are shown to be misleading and deceptive hence the execution of the agreement is of significance in the present case as it is the primary act of reliance by the applicant on the misrepresentation which it says was made to it. It was noted there was conflicting evidence given by Glen McKenzie, Teresa McKenzie and Ken Hall about the date upon which the agreement was signed. It was noted that Glen McKenzie’s evidence initially was that he did not speak to the second respondent until after 16 May 2002. Prior to that date his dealings were with the fourth respondent. In cross-examination he had agreed that there was no discussion with Grant Caple prior to signing the agreement but when it was pointed out the him that this was inconsistent with his third affidavit (Exhibit A4) sworn almost exactly a year later he stated the date must have corresponded with something else which triggered his memory but could not say what. The fifth respondent submitted that what had triggered the witness’s memory was the affidavit of Hall sworn in May 2003 (Exhibit A8). Reference was made to the evidence of Hall who when questioned about the accuracy of the dates indicated the dates were extracted from his diary though the diary was not produced. The fifth respondent submitted in the circumstances that in the absence of any recollection of precise dates independent of the diary the court should attach little weight to Hall’s evidence. Further it was submitted that Mr McKenzie’s recollection of events would have been better in March 2003 when his first affidavit was signed, that is only ten months after the relevant event rather than the recollection of the same events in March 2004. It was submitted that it is appropriate to find that no meeting occurred at the business premises prior to the execution of the agreement.
In the alternative it was submitted by the fifth respondent that if there was such a meeting then there was no evidence as to what was discussed on that occasion. Mr McKenzie had admitted in his third affidavit (Exhibit A4 paragraph 7) that he could not recall what occurred at that meeting. When questioned he purported to recall that there was discuss on “how the business would be run” and the fact that it was “a good little business”. It was submitted that given his failure to get any earlier evidence about these matters that the comments were the product of pressure of cross-examination rather than independent recollection. In any event the comments were both vague and do not assist in establishing the representations as alleged. Accordingly it was submitted that even if there was found to be a meeting on or about 12 May 2002 there was no credible evidence of what if any representations were made on that date. It was submitted there is no evidence of any or any specific representations being made by Grant Caple direct to the applicant prior to them signing the agreement whether the agreement was signed on 13 or 16 May 2002. Therefore the only representations on which the applicant can rely in establishing they were induced to into the agreement to purchase the business are those made in the business profile and by Ken Hall prior to execution.
As to the representations contained in the agreement, it was submitted by the fifth respondent that the applicant provided no evidence that it relied on any representations contained in the agreement when it was signed. Reference was made to the affidavit of Teresa McKenzie sworn 5 March 2004 and in particular paragraphs 14 and 16 of that affidavit where the deponent states that “Glen and I believed that based on what was in the report and what Ken Hall had said including answering Glen’s questions the business was a good business that Glen would be able to run and to increase profits by selling more profitable stock from Thailand and also by increasing the sales”. It was submitted by the fifth respondent that those comments in the affidavit were too vague to support any finding that the agreement contained anything relied upon by the applicant.
The fifth respondent otherwise assessed the evidence of Ken Hall and submitted little weight should be given to that evidence or that it should be discounted where it conflicts with that of other witnesses. Specific criticism was made of his evidence in relation to his recollection about being told that McCaughan was in his 60’s and evidence surrounding the preparation of the business profile. Specific reference was made to a meeting on 4 April 2002 where Hall claims he was then told by Grant Caple that McCaughan was in his 60’s and retiring on 30 June 2002. Reliance was placed on the fifth respondent’s evidence and in particular paragraph 16(e) of her affidavit (Exhibit R2) where she states the following:-
“We did not say that the company’s current sales representative Ron McCaughan was in his 60’s as he was at that time still in his 50’s. I have no recollection of Mr Hall being told that Mr McCaughan was retiring and this was not said to Mr Hall in my presence”.
It was claimed the fifth respondent’s version of events was supported by the fact that there is no mention of McCaughan retiring in the business profile. The profile refers to the employment “terminating” not to the “sales representative retiring”.
It was submitted there was no objective evidence other than the evidence of Hall that he was told prior to 16 May 2002 that the sales representative was retiring. It was submitted that Hall was evasive when asked whether or not he had read or endorsed the contents of the business profile and further submitted that he should not be believed when it was suggested he would sell a business on the basis of a profile he had not carefully read. The evidence of Hall and Glen McKenzie should be treated with caution in the absence of evidence from the second respondent, according to the submissions made on behalf of the fifth respondent. In any event it was submitted that no proper evidence has been adduced of any loss flowing from the misrepresentation alleged in relation to the retirement of McCaughan. Failure to specify particular customers the applicant no longer services and sales and profits for which each of those customers accounted is claimed to be an important gap in the applicant’s evidence.
The representations
The respondent submitted that the representation concerning the potential for future growth and profit of the business was not sufficiently clear to establish a breach of s.52. In relation to the issue of average monthly sales where it was claimed there was a representation that these would continue to be $58,000 and $65,000 per month, it was submitted this is not set out in the business profile. The profile makes no representations as to monthly sales into the future. An admission by Mr McKenzie that he anticipated a down turn in monthly sales indicated according to the fifth respondent’s submissions that he did not rely upon any representations in any event if they were made.
In relation to representations in the profile that the first respondent developed customer loyalty through regular visits by sales representatives and was successful because it was a contact business where customers were visited, it was submitted that that representation together with the direct calling by sales staff accounting for approximately 80% of total sales had not been proved to be incorrect. Nor has it been established that they contributed to any loss by the applicant.
It was denied that there was any representation made that the business could continue to service customers. As to the claim that the business had a broad customer base, it was submitted that there was no evidence that this was not an accurate representation.
The nails from Thailand issue presented a number of difficulties according to the fifth respondent’s submissions. It was claimed that the representation in the business profile was more qualified than the pleadings suggested and as the applicant had effectively paid nothing for the Thai stock it was difficult to see what loss could be said to have flowed from the misrepresentation if made.
The value of stock issue after cross-examination established that the truth or otherwise of any representation as to stock could only be ascertained once a stock take process was complete. That process it was argued extended well into the period after proceedings were commenced. Reference was made to the applicant being told that the value of stock was $56,000. Reliance was placed upon the letter to Mr Bill Cameron of Associated Stocktaking dated 28 February 2004 (Annexure GM3 to Exhibit A4). In that letter a zero value or reduced value to all slow moving or redundant stock was given and to much of the Thai goods to reach a valuation of $26,358.07. It was noted the applicant received a refund from monies paid into trust pending the stock take of $15,654.93. The proposed value of the stock was accepted and they received an additional $2,000. It was not open to the applicant to allege the representations about the value of stock or about slow moving or redundant stock were made before these issues had been determined by the stock take. Even if the representations were made and were false it was argued the applicant suffered no loss as a result.
In relation to the claimed representation that the business of the first respondent could maintain an annual net profit of no less than $77,000 per annum, it was submitted that the agreement contains no such representation but rather states the purchaser should be “satisfied that the business can maintain an annual net profit of no less than $77,000 per annum” (see Special Condition 1B Annexure A p.74 Exhibit A2).
The representation concerning the lack of knowledge of the respondents as to any circumstances likely to adversely affect the trading position of the business of the first respondent is claimed to be a reference to clause 6 of the Special Conditions of the Agreement. It was submitted that there is no basis for attributing that representation to the fifth respondent as she did not sign the agreement and there was no evidence that she actually read the agreement.
The issue concerning stock on consignment from FJ House Pty Ltd and in particular representations that that would continue provide a significant opportunity and cash flow benefit for the business and provided 31% of the stock sold by the first respondent was submitted to be not false or misleading.
The fifth respondent submitted that the representation concerning rental being reasonable and at market value has not been shown to be false and any attempt to simply compare the rental on this property with one other comparative property was argued to be inappropriate and/or the evidence sought to be adduced particularly in the affidavit of Teresa McKenzie (paragraphs 11 to 14 of Exhibit A7) is inadmissible.
The representations referring to there being no issue in relation to consignment stock from FJ House on the basis that Travers Caple was married to the daughter of the manager was claimed not to be false in any causative relevant way and further that the consignment agreement continued until the business was sold by the applicant.
It was otherwise submitted that any suggested lack of support to the owner or inability to develop expansion strategies and/or a suggestion of the task of a potential buyer being no more difficult than taking over the reigns of “a well trained horse” were all claimed to be matters in the business profile but not sufficient as clear representations to establish any breach of s.52 of the TPA.
Section 75B
It was submitted on behalf of the fifth respondent that her involvement in the sale of the business was straight forward and largely unchallenged. Specifically it was argued that the following matters were not in dispute:-
·The decision to sell the business was precipitated by the break up of the fifth respondent’s marriage to the second respondent.
·The fifth respondent’s only involvement in the sale process was to ring the fourth respondent, provide him with stock figures and attend the meeting which the fourth respondent states occurred on 4 April 2002 with the second respondent.
·The fifth respondent worked full time in the office for a period of time in February 2002 while she was between jobs. By the time the applicant was introduced to the business she was in full time employment elsewhere.
·At no relevant time was the fifth respondent cohabiting with the second respondent. Her contact with the second respondent was minimal.
·There is no evidence that the information which the fifth respondent gave to the fourth respondent was false or misleading.
·The fifth respondent had no relevant involvement in the preparation of the pro forma document that was the basis for the business profile and drafting of the profile itself nor did she sign the agreement and had no relevant contact with either applicant regarding the business prior to signing the agreement or afterwards.
·The fifth respondent had essentially no involvement in the sale process and in the facts there is nothing to suggest she should have been involved
In relation to the Thailand products it was submitted that reference to a single consignment of products from Thailand purchased by the first respondent in late 2002 or early 2002 which was the subject of a conversation between McCaughan and the fifth respondent was not sufficient to provide a basis of liability for the fifth respondent. As I understood the submission made was that there was no evidence that the conversation took place after the decision to sell the business and no evidence that the conversation took place or near the time the applicant was purchasing the business. The fifth respondent it was argued had no more direct knowledge of the problems with Thai stock than the applicant as everything she knew of that stock was conveyed to her either by McCaughan or the second respondent. Hence, the nature of her involvement in the sale process and business makes the notion that she was under a positive duty to inform the applicant’s in this case misconceived.
In general terms the fifth respondent claimed that her joinder in these proceedings was simply undertaken on the basis of targeting her because she had money against the backdrop of a default judgment being obtained as recited earlier in this judgment and after the applicant became aware of the terms of the property settlement between the fifth respondent and the second respondent in the Family Court. It is not clear from the submissions as to whether or not a belief that the fifth respondent had money provides an appropriate defence to any action though the submission is taken to be a suggestion that the claim is without merit as against the fifth respondent as it is based simply on the potential for recovery rather than a proper basis upon which the claim can be established arising out of s.75B of the TPA. The fifth respondent otherwise denies aiding and abetting or being knowingly concerned in or party to any contravention pursuant to s.75B. Specifically it was argued the fifth respondent did not have full access to all the information in relation to the sale of the business and indeed was barely involved in the sale. Although she made contact with Ken Hall on the instructions of Grant Caple, the fifth respondent did not speak to Hall after 4 April 2002 and did not engage him to sell the business. Whilst it was acknowledged that the fifth respondent provided stock information from the computer, it was submitted this was a mechanical process simply designed to instruct accountants to provide up to date financial figures. It was submitted the fifth respondent could not be taken to be adopting or confirming the accuracy of the information given and in any event the accuracy which was given was never challenged. Otherwise it was submitted the fifth respondent had no meaningful involvement in the production of the sales report and her awareness of the problems of stock from Thailand does not mean that she could have known of any relevant misrepresentation made about that stock or had any reasonable opportunity to discuss that or any other issue about the sale of the business with Ken Hall or the applicant after 3 May 2002. Whilst the fifth respondent was aware of the position in relation to the sale to McCaughan, it was submitted she was unaware of any representation being made about that factor to the applicant.
Reliance was placed upon the decision of Yorke v Lucas referred to earlier in this judgment and it was argued that liability under s.75B(1)(a) requires a party to have intentionally aided, abetted, counselled or procured the contravention. A person unaware of the misleading and deceptive nature of a contravention lacks the necessary knowledge to form the required intent. It was argued the fifth respondent did not and could not reasonably have known of the representations made and although she knew of the position in relation to the sales representative, she did not know and had no reasonable way of knowing that the position was being misrepresented to the applicant and accordingly lacked the requisite knowledge.
It was further submitted that to be knowingly concerned or a party to the contravention under s.75B(1)( c) the fifth respondent must have had actual knowledge of the essential facts that gave rise to the contraventions. The lack of real involvement by the fifth respondent was evident to the applicant at an early stage and for that reason it is required to rely not on direct knowledge but on an inference that the fifth respondent knew the essential facts that the representations were misleading or deceptive or alternatively was wilfully blind to suspicious circumstances and her failure to make any proper enquiry supports an inference of knowledge by her as to the existence of the misrepresentations and their falsity. There were no suspicious circumstances in this case of which the fifth respondent could have been aware that could reasonably could have put her on notice. Even before separation from the second respondent the fifth respondent had only a limited role in the company and her lack of involvement in the running of the company and sales process was submitted to be “perfectly natural in the circumstances of the marriage break down”. Constructive or deemed knowledge is not sufficient it was argued to establish liability under s.75B of the TPA unless ignorance is dishonestly and deliberately maintained in which case it may not be regarded as ignorance at all (see Crocodile Marketing v Griffith Vintners Pty Ltd & Anor (1989) 91 ALR 273).
It was further submitted that whilst the fact that the parties had entered into a binding financial agreement and that the fifth respondent received assets including business premises pursuant to that agreement was ventilated in the joinder application, it is not relevant in the trial other than relating to the motives of the applicant in joining the fifth respondent.
The fifth respondent otherwise relied upon the counterclaim for rent from the applicant and argues the essential facts giving rise to that liability are not disputed. It was noted that in the affidavit of Glen McKenzie (Exhibit A2) he admits to the additional non payment of rent in paragraph 34 where it is stated, “In order to keep the business open the rent has not been paid for February 2003 yet …”. The fifth respondent claims that the applicant left the premises on 1 December 2003 and no rent has been paid since and accordingly the fifth respondent is entitled to unpaid rent as a liquidated sum up to and including the date of the hearing plus interest.
Findings and reasoning
There is no doubt that at all material times the fifth respondent was a director of Grant Caple Pty Ltd (the first respondent). Further, the business known as All Fasteners was started by Grant Caple in 1992. The role in my view of the fifth respondent based on the evidence before me in the conduct of the business was primarily that of reconciling accounts and paying creditors. It is noted she had an authority to sign business cheques on behalf of the business. It is not in dispute and I formally find that the fifth respondent and second respondent’s marriage broke down on 4 February 2002 with the second respondent moving to live in Thailand.
I further find that at all material times the fifth respondent had been a joint proprietor of the premises and that the business had been conducted from the premises. The fifth respondent at all material times was a shareholder of the first respondent from 22 December 1992 and a director from 1 March 1993. The first respondent had previously been known as All Fasteners (WA) Pty Ltd. It is significant to note that name as it appears in two crucial documents which are relevant in this dispute. The first is the document referred to throughout as the business profile or business report, the original of which became Exhibit A13 in these proceedings. The second document referred to as the agreement was an agreement between the first respondent then known as All Fasteners (WA) Pty Ltd a copy of which is exhibited as GM3 to the affidavit of Glen McKenzie sworn 4 March 2003 (Exhibit A2). In the agreement the vendor is referred to as “All Fasteners (WA) PL – Grant Caple”. It is clear that the agreement was signed by Glen and Teresa McKenzie though only signed by Grant Caple. I accept that it was not signed by the fifth respondent.
Whilst a number of representations have been alleged and relied upon in this application, it is my view that there are three significant representations made prior to the date of the agreement. The first concerns the retirement of McCaughan as sales representative of the business, the second relates to nails imported from Thailand claimed to be of no less quality than those of other suppliers which would provide substantial profit margins and the third that the vendors were not aware of any circumstances like to adversely affect the trading position of the business. To a large extent those three representations encompass other representations or at least present key issues of concern to the applicant. Amongst the other circumstances include the suggestion that a suitable sales representative replacement was available.
However, the three key representations made are significant in the sense that they all appear to be set out in the business profile (Exhibit A13). Specifically, that business profile sets out what I regard to be as relevant background in relation to understanding the representations and their significance both in terms of reliance and the loss claimed by the applicant. The reference to the vendor developing “a customer loyalty through regular visits by the sales representative and personal networking with customers by the vendor” is significant. Whilst of itself not necessarily providing the basis of a representation, it does nevertheless provide a clear understanding as to the significance of the role played by both the vendor and the then sales representative. It is clear that personal contact and customer loyalty are crucial to the success of the business in this instance. It is further significant to note in the business profile that reference is made to the following:-
“This business is successful because it is a contact business where customers are visited, orders taken and personal relationships developed.”
In relation to the issue of McCaughan the business profile provides the following statement:
“The current sales representative has indicated his intention to terminate employment on June 28, 2002. This will necessitate the recruitment of a replacement.”
Whilst some criticism has been made of the representation as pleaded compared with that extract to which I have just referred, I am satisfied that although the extract refers to an “intention to terminate employment” that in all the circumstances having regard to the background operations including the significance of the sales representative that a representation was made of a kind as pleaded and/or was understood to have been made of a kind as pleaded namely that McCaughan would retire and would not continue an active sales position in the industry or otherwise.
In my view that representation in relation to McCaughan arrived at by combination of the business profile and the affidavit of Ken Hall sworn 2 May 2003 (Exhibit A8) together with the background to which I have referred is significant. Likewise, it is significant for the vendor to represent in the report the following:-
“The vendors acquisition of the agency for nails and staples imported from Thailand is only recent but holds prospects of replacing some existing suppliers with a product that provides substantially better margins of profit. Early evidence is that the imported product is no less of quality than other suppliers. New owners will be able to source these from either the vendor or other parties to be named.”
I find that at the time when that statement was made for and on behalf of the first respondent as vendor it was then known as a result of information provided by McCaughan, a sales representative with more than 27 years experience that there were problems with the stock from Thailand and that stock was then unable to be sold or had been returned for credit or replacement. I am satisfied that had the applicant known that McCaughan was going to work for another competitor and not retiring and/or that there were problems with the Thailand stock, both of which in turn would at least put in jeopardy the suggestion that there were no circumstances likely to adversely affect the trading position of the business, then the applicant would not have entered into the agreement. I am satisfied on the evidence before me in relation to the subsequent sale price that the representations were made, relied upon and loss suffered in an amount yet to be determined.
I should add that the vendor’s warranty in the agreement clause 6 wherein it is stated, “The vendor acknowledges he was not aware of any circumstances that are likely to adversely affect the trading position of the business” constitutes a representation which is clearly misleading and deceptive having regard at least to the issue of the Thailand nails and the retirement of McCaughan.
I accept that having found that the representations were made, relied upon and that loss or damage appears to have occurred at least for the purposes of establishing a claim under s.52 of the TPA, it is not necessary for me to further consider all the other representations in detail and that the finding in relation to one or more of the representations as indicated is sufficient for the applicant to succeed. The representations that I have found are also in my view representations which should properly be considered in relation to the fifth respondent. Of particular importance are the representations concerning McCaughan and the Thailand nails.
I am not satisfied that the applicant has established the claim based upon the value of the stock and accept the respondent’s submission that the truth or otherwise of any representations as to stock could only be ascertained once the stock take process was complete. It was clear from the evidence of Mr McKenzie that any assertion about the representations was somewhat premature as the stock take process had not been completed and accordingly in my view that part of the claim cannot be sustained by the applicant against the fifth respondent. It is evident that there was a stocktaking process undertaken though I do not accept that at the time any representations were made about the value of the stock that could properly be regarded as misleading or deceptive conduct.
In relation to the consignment from FJ House Pty Ltd I do not accept that that part of the claim was made out in the present application. In my view the evidence of Mr Pascoe whilst clearly indicating that it was anticipated a consignment may be withdrawn had not yet reached a stage where it was actually be withdrawn but rather would depend the sales performance of either the then owners or the purchasers. In those circumstances I am not satisfied that there was a representation of a kind which would attract liability under the TPA.
I should add for the sake of completeness that any settlement between the applicant and the first respondent and its voluntary administrator only affects those parties and does not provide evidence that the applicant has not suffered loss.
I am satisfied that a finding of liability in relation to even one of the representations such as the Thailand stock or sales representative may provide a basis for liability of all the applicant’s losses on the basis that each representation was the cause of the applicant purchasing the business and suffering the losses that followed (see Henville v Walker (2001) HCA 52). It is not appropriate or necessary for me to further analyse the extent of the loss including loss that may have been occasioned by the applicant’s own conduct in relation to proper staffing arrangements and other decisions as that matter has yet to be determined.
I am satisfied and accept the applicant’s submissions that on the evidence of both Teresa and Glen McKenzie they had read the business profile and that at least in part the contents of that report and in particular the representations concerning the Thailand nails and McCaughan were relied upon in their decision to purchase the business. I am satisfied the report was read and understood and not in this case merely given a fleeting glance by the McKenzies.
I should further add that I accept that some caution should be exercised in dealing with the evidence of Hall and Glen McKenzie in relation to what they may have been told by Grant Caple in relation to McCaughan. However, that does not mean the evidence should be rejected and as indicated earlier I am prepared to accept that representations were made of the kind pleaded in relation to McCaughan. The fact that at present specific evidence has not been adduced as to any loss flowing from that misrepresentation does not in relation to liability preclude the court from making a finding of liability. It may become more relevant as to the precise extent and nature of any loss suffered as a consequence though in general circumstances the retirement of a sales representative with an extensive history with the business whilst being of concern is far more significant in circumstances where that person commences employment with a competitor and that fact is known by the vendor prior to the execution of the agreement to purchase the business and prima facie would cause loss.
Fifth Respondent’s liability pursuant to s.75B of the TPA
The evidence of the fifth respondent in my view provides some basis upon which it could be concluded that she had actual knowledge in relation to the Thailand stock. It is clear from the affidavit evidence that she had been told that the product from Thailand was “rubbish” by McCaughan (paragraph 22.2 Exhibit R2). Further she had been told again by McCaughan that he was dissatisfied with the product bought in from Thailand. McCaughan also confirmed she had told the fifth respondent that the second respondent should get a credit note for the product from Thailand. I note and accept that the product from Thailand had remained in the factory for months until McCaughan left and I conclude that this would have been a matter known to the fifth respondent prior to the execution of the agreement or preparation of the business profile. As a director of the vendor company responsible for producing the profile, it is my conclusion that the fifth respondent had actual knowledge of this representation which as I have indicated I find was misleading and deceptive and provides a basis for contravention of s.52 of the TPA.
In this case I am satisfied that the fifth respondent had attended at least three meetings where the issues of the Thailand stock and the retirement of McCaughan had been discussed. Despite her lack of recollection and issues raised as to the actual age of McCaughan, I am satisfied that at all material times she was aware that McCaughan was retiring and was going to commence employment with a competitor namely Trade Power. The fifth respondent in my view was keen to ensure that the sale of the business occurred in the most beneficial manner and it was in her interests to ensure that it proceeded successfully.
Although the fifth respondent did not have the same active role in the business as the second respondent, I am satisfied that her duties in relation to the stock report, her knowledge of the Thailand nails and the retirement of McCaughan were sufficient to provide a basis of actual knowledge of a kind which would invoke the operation the s.75B of the TPA. The fifth respondent as with the second respondent did not disclose to Hall during discussions about the business the problems with the Thailand nails and otherwise remained silent in relation to the future of McCaughan. It would be reasonable to expect therefore that Hall may in the business profile provide material which as I have found would be misleading and deceptive in contravention of s.52 of the TPA.
Whilst it is noted that the fifth respondent did not personally make representations I am satisfied that she had actual knowledge as found earlier in this judgment. It should further be noted that whilst the consequences may be unfortunate given that the key player in the process was the second respondent who has now left the jurisdiction after the marital breakdown between him and the fifth respondent, the fact remains that there is force in the submissions made for and on behalf of the applicant that a director of the first respondent is required to be involved in the management of a company. I otherwise accept that in circumstances of this kind consistent with the corporations legislation in Australia that directors are expected at least at the time when this transaction occurred to participate in the management of the corporation (see Deputy Commissioner of Taxation v Clark (2003) NSWCA 91 at [116]). In any event in this case whilst the representations were not made directly by the fifth respondent to the applicant, it is clear that as found earlier she was involved in initiating the appointment of the agent and providing information to the agent including either communicating certain information or remaining silent about other information which she would know or would reasonably have known could result in potential purchasers being misled or deceived in relation to at least the three matters identified namely the McCaughan retirement, the Thailand product and whether or not the report could properly represent that the vendors were not aware of any circumstances likely to adversely affect the trading position of the business.
I am satisfied and accept the submissions made on behalf of the applicant in relation to any disclaimer provision contained in the business profile report. As indicated earlier I accept the submission that a party cannot contract out under the provisions of the TPA. I otherwise apply the decision of Wilcox J in Petera Pty Ltd v EAG Pty Ltd (1984) 7 FCR 375.
Accordingly I find that the fifth respondent is liable in relation to representations referred to in this judgment.
In relation to the counterclaim it is my view that the amount claimed for rent, if any, should be properly taken into account by way of set-off in an assessment of the loss following the decision of the Court that the fifth respondent is liable to the applicant for misleading and deceptive conduct. I otherwise find that the premises were vacated by the applicant at the request of the fifth respondent and do not accept that there are damages which arise from the abandonment of the premises. Any amount which is subject to proof or loss of rental may be taken into account by way of set-off against any damages to be decided by the Court at trial on the issue of loss.
It follows therefore that there should be judgment for the applicant against the fifth respondent and the counterclaim dismissed with no order as to costs on the counterclaim. Loss and damage is to be determined at trial. However mediation in my view would be appropriate in this application before the matter proceeds to a further hearing on the issue of loss.
I propose making the following orders:-
1.That there be judgment for the applicant against the fifth respondent.
2.That the counterclaim be dismissed with no order as to costs.
3.
That the issue of loss and damage including any amount of set-off be referred to further mediation to be conducted by a Registrar of the Court appointed by the Registrar of the Court on or before
28 January 2005.
4.
In the event that the outstanding issues are not resolved at mediation the application be listed for mention at 9.30 am on
10 February 2005.
I certify that the preceding ninety-three (93) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 10 December 2004
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