Bartkowski v Funwest Pty Ltd
[2012] WADC 51
•5 APRIL 2012
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: BARTKOWSKI -v- FUNWEST PTY LTD [2012] WADC 51
CORAM: DERRICK DCJ
HEARD: 14-17 FEBRUARY 2012
DELIVERED : 5 APRIL 2012
FILE NO/S: CIV 937 of 2006
BETWEEN: JERZY BARTKOWSKI
Plaintiff
AND
FUNWEST PTY LTD
First DefendantCOLIN PAUL WHITTAKER
Second Defendant
Catchwords:
Misrepresentation - Oral and written representations - Causation - Rescission
Misleading or deceptive conduct - Oral and written representations - Causation - Declaration agreement void under s 77(3) of the Fair Trading Act 1987 (WA)
Contract - Breach and repudiation - Principles of construction - Implied terms
Unjust enrichment
Unconscionable conduct - Sections 75B and 51AA of the Trade Practices Act 1974 (Cth)
Rectification
Damages - Misrepresentation - Misleading or deceptive conduct - Section 79(1) of the Fair Trading Act 1987 (WA)
Legislation:
Corporations Act 2001 (Cth)
Evidence Act 1906 (WA)
Fair Trading Act 1987 (WA)
Fair Trading Act 2010 (WA)
Supreme Court Act 1935 (WA)
Trade Practices Act 1974 (Cth)
Result:
Judgment for the plaintiff
Damages awarded - $80,000
Representation:
Counsel:
Plaintiff: Mr T B Lyons
First Defendant : Not applicable
Second Defendant : Mr E J Myers
Solicitors:
Plaintiff: Gibson Lyons
First Defendant : Not applicable
Second Defendant : Peter J Griffin & Co
Case(s) referred to in judgment(s):
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98; [145]; (2009) 40 WAR 191
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304
Car and Universal Finance Co Ltd v Caldwell [1964] 1 All ER 290
City & Suburban Group Pty Ltd v Gambetta Holdings Pty Ltd [2011] WASCA 233
Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337
Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd [2006] HCA 55
Corporate Systems Publishing Pty Ltd v Lingard [No 4] [2008] WASC 21
Crosbie; Re Media World Communications Ltd v Naidoo [2005] FCA 51; (2005) 216 ALR 105
ER Squibb & Sons Pty Ltd v Tully Corp Pty Ltd (1986) ATPR 40-691
Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903
Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 55 ALR 25
Gould v Vaggelas [1985] HCA 85; (1984) 157 CLR 215
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
Hughes Aircraft Systems International v Airservices Australia [1997] FCA 558; (1997) 146 ALR 1
Ideas Plus Investments Ltd v National Australia Bank Ltd [2006] WASCA 215; (2006) 32 WAR 467
Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26
JM Kelly (Project Builders) Pty Ltd v Toga Development No 31 Pty Ltd [No 5] [2010] QSC 389
Johnson Tiles Pty Ltd v Esso Australia Ltd [2000] FCA 1572; (2000) 104 FCR 564
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181
Maguire & Tansey v Makaronis [1997] HCA 23; (1997) 188 CLR 449
Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336
McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579
McCourt v Cranston [2012] WASCA 60
Permanent Building Society (in liq) v Wheeler (1992) 10 WAR 109
Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126
Pukallus v Cameron (1982) 180 CLR 447
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596
Sons of Gwalia Ltd v Margaretic [2007] HCA 1 [54] ‑ [60]; (2007) 232 ALR 232
Tenji v Henneberry & Associates Pty Ltd [2000] FCA 550; (2000) 98 FCR 324
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 [40]; (2004) 219 CLR 165
Webb Distributors (Aust) Pty Ltd v State of Victoria [1993] HCA 61; (1993) 179 CLR 15
Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [No 9] [2010] WASC 44
Zhu v Treasurer of the State of New South Wales [2004] HCA 56 ; (2004) 218 CLR 530
DERRICK DCJ:
Introduction
The dispute between the plaintiff and the second defendant has its genesis in a 2003 business transaction. Each party alleges, in essence, that the other party failed to live up to his side of the bargain.
On 5 June 2009 the shareholders of the named first defendant in the action, Funwest Pty Ltd (Funwest), passed a resolution to voluntarily wind up the company. The plaintiff did not, after the passing of the resolution, make an application pursuant to s 500(2) of the Corporations Act 2001 (Cth) (the Corporations Act) for leave to continue his action against Funwest. On 12 August 2010 Funwest was deregistered and consequently ceased to exist: Corporations Act s 601AD(1). Accordingly, the plaintiff's action is against the second defendant only.
The causes of action pleaded by the plaintiff against the second defendant are breach of contract alternatively repudiation of contract, unjust enrichment, unconscionable conduct, misrepresentation and misleading and deceptive conduct.
By counterclaim the second defendant pleads against the plaintiff breach of contract alternatively repudiation of contract. The second defendant also seeks an order for rectification of a deed executed by himself, Funwest and the plaintiff which is central to the dispute between he and the plaintiff.
At trial the plaintiff gave evidence. He also called Mr Martin Brumer to give evidence.
The second defendant gave evidence in support of his defence. He also called a number of witnesses, namely Mr Ian Pattinson, Ms Joan Greenwell, Mr Ralph O'Toole, Ms Marilyn Pelka and Ms Elizabeth Morgan.
Background
In 1991 the second defendant, through a company called Auswalk Pty Ltd (Auswalk), entered into a lease of the land and a building situated at 4 Carson Road in Malaga (the premises). The premises were owned by Hilsden Nominees Pty Ltd (Hilsden). Prior to 1991 the building which formed part of the premises had been used as a tile warehouse.
The lease was entered into on the basis that Hilsden, which was owned by a Mr Vic Parin, would permit the second defendant to construct in the building a ballroom and to operate a ballroom dancing business from the premises.
The second defendant completed the construction of the ballroom in June 1991. Thereafter the second defendant owned and operated, through Auswalk, a ballroom dancing business from the premises. The business was known as the 'Talk of the Town Ballroom & Function Centre' (the business).
In or around May 2002 the second defendant purchased Funwest. Funwest was a shelf company.
On 3 May 2002 the second defendant's partner, Ms Marilyn Pelka, was appointed the sole director of Funwest. The ten $1 ordinary shares in Funwest were allocated to Ms Pelka. The arrangement between the second defendant and Ms Pelka was that as soon as Funwest began to trade Ms Pelka would resign as a director, the second defendant would be appointed as sole director, and Ms Pelka would transfer the shares that she held in the company to the second defendant. In order to reflect this agreement Ms Pelka on 6 May 2002 signed a document headed 'Resolution of the Director of Funwest Pty Ltd' which was in the following terms:
RESOLVED THAT the sole shareholder shall hold the 10 ordinary issued shares until the company commences trading.
RESOLVED THAT when the company commences trading the 10 ordinary shares shall be transferred to the person trading.
RESOLVED THAT at the time the company commences trading the current director shall resign their position.
In 2002 the premises were for sale for $795,000. The second defendant wanted to buy the premises so that he could keep operating the business from them. The second defendant was concerned that if he did not buy the premises any new owner would not permit him to continue to operate the business from the premises.
At some point in 2002 or in the first half of 2003 the second defendant approached Mr Parin and asked him if he would lower the sale price for the premises. Mr Parin agreed to lower the sale price to $730,000.
In or around June 2003 the second defendant was attempting to secure finance to enable Funwest to make an offer to purchase the premises. As part of these attempts the second defendant approached a finance broker, Mr Ian Pattinson, for assistance in obtaining finance to purchase the premises.
On 26 June 2003 Funwest made an offer to purchase the premises for $730,000. The offer was signed by the second defendant on behalf of Funwest. Funwest had not, since May 2002, traded or acquired any assets.
The offer to purchase the premises was accepted by Hilsden on 26 June 2003. The acceptance was signed by Mr Parin on behalf of Hilsden. The date for settlement of the purchase of the premises was ultimately set for 7 October 2003.
After the acceptance of Funwest's offer Mr Pattinson took steps to obtain funding for Funwest so that it could complete the purchase of the premises. Ultimately Mr Pattinson organised the following funding for the purchase of the premises by Funwest:
1.a $510,000 loan from La Trobe Capital and Mortgage Corporation (La Trobe) to Funwest to be secured by a mortgage over the premises;
2.a $70,000 loan from La Trobe to Funwest to be secured by a second mortgage over the premises;
3. a $180,000 loan from Liberty Finance (Liberty) to Funwest;
4.a $78,000 loan from Ms Pelka to Funwest;
5.a $10,000 loan from Ms Pelka to Funwest; and
6.a $20,000 loan from some other source.
The $180,000 loan from Liberty was in part used to pay out other loans that Liberty had previously made to the second defendant. The net result was that the total amount of funding arranged by Mr Pattinson for the purchase of the premises was $791,000.
By in or around July 2003 the second defendant was concerned that the amount of funding obtained for the purchase of the premises would not be enough to cover the total that would need to be paid to complete the purchase after agent's fees, settlement fees, stamp duty, rates and taxes, and other fees were taken into account. The second defendant believed that the amount that Funwest would ultimately be required to pay to complete the purchase of the premises would be in excess of $800,000.
In 2003 Mr Martin Brumer was a long time client of the business. He had been attending the ballroom for dancing for a number of years. He knew the second defendant and Ms Pelka well. He would on occasions dance with Ms Pelka. He would sometimes help give dance lessons to other clients of the business. He did this voluntarily.
In 2003 Mr Brumer was also a long time good friend of the plaintiff. He first met the plaintiff in 1985 when he was living in Sydney. Although he moved to Perth in 1989 he had remained good friends with the plaintiff. In 2003 he was living in a house in Mullaloo which was owned by the plaintiff. He paid minimum rent for the house and looked after it for the plaintiff.
In or around August and September 2003 Mr Brumer had a conversation with Ms Pelka. During the conversation Ms Pelka informed Mr Brumer of the difficulties that the second defendant was having in raising sufficient funds to complete the purchase of the premises. She told Mr Brumer that if the second defendant was not able to purchase the premises the business might have to be closed down.
On receiving this information Mr Brumer told Ms Pelka that he had a friend who might be interested in investing in the business. Mr Brumer also spoke to the second defendant and told him about the friend who might want to invest in the business. The friend that Mr Brumer had in mind was the plaintiff.
Over the next few days or weeks the second defendant and the plaintiff communicated through Mr Brumer about the possibility of the plaintiff investing in the business.
On or about 10 September 2003 the second defendant instructed his accountant, Ms Joan Greenwell of JV Greenwell & Associates, to prepare documents recording that Ms Pelka had resigned as a director of Funwest and that he had been appointed a director. In accordance with these directions Ms Greenwell prepared, or arranged to be prepared, for Ms Pelka's signature a document headed 'A Resolution of the Director of Funwest Pty Ltd'. The document read:
RESOLVED THAT I hereby resign as the director of Funwest Pty Ltd.
Ms Pelka signed the resolution on 10 September 2003.
Also on 10 September 2003 Ms Greenwell prepared, or arranged to be prepared, for the second defendant's signature an Australian Securities and Investments Commission (ASIC) 'Notification of change to officeholders'. The form recorded that the second defendant had been appointed a director of Funwest on 10 September 2003. The second defendant signed the form on 10 September 2003. The form was lodged with ASIC on that date. Accordingly, from 10 September 2003 Ms Pelka ceased to be a director of Funwest and the second defendant became the sole director.
At some point between 10 September 2003 and the end of September 2003 the second defendant also instructed Ms Greenwell to prepare and lodge with ASIC documentation recording that Ms Pelka had transferred to the second defendant the 10 ordinary shares in Funwest. As a result of an error on the part of Ms Greenwell or one or her employees the form recording the transfer of shares was not lodged with ASIC in accordance with the second defendant's instructions. Indeed no notification of any transfer of the shares from Ms Pelka to the second defendant was lodged with ASIC until 21 June 2006. Accordingly, Ms Pelka remained the sole shareholder in Funwest until that date.
On Sunday 21 September 2003 the plaintiff flew to Perth from Sydney. He did so as a result of the communications that he had been having with the second defendant through Mr Brumer about the business.
The plaintiff arrived in Perth in the afternoon. Mr Brumer picked him up from the airport and drove him to the premises. By the time the plaintiff arrived at the premises it was late afternoon or early evening. The regular Sunday dancing was taking place in the ballroom. Mr Brumer introduced the plaintiff to the second defendant. The plaintiff and the second defendant did not enter into any significant discussions about the possible transaction concerning the business at this time.
The plaintiff and Mr Brumer returned to the premises on the morning of Monday 22 September 2003. The plaintiff met with the second defendant in the second defendant's office which was in the ballroom. The plaintiff and the second defendant discussed the terms on which the plaintiff might invest in the business. Precisely what was discussed and what agreement was arrived at during this meeting is in hot dispute between the parties.
As a consequence of his meeting with the second defendant the plaintiff spent the rest of the day making inquiries of two financial institutions as to the possibility of him obtaining $80,000 for use in the contemplated transaction concerning the business. The plaintiff ascertained that he could obtain a total of only $69,000. Mr Brumer offered to loan to the plaintiff the additional $11,000.
The plaintiff and Mr Brumer met with the second defendant again on the morning of Tuesday 23 September 2003. The plaintiff had with him $80,000 comprised of the $69,000 that he had been able to raise and the $11,000 that Mr Brumer had loaned to him. The money was given to Mr Brumer, together with an additional $15,000 provided by the second defendant, to take to the office of Paramount Settlements (Paramount) so that it could be used by Funwest to complete the purchase of the premises. Paramount was the settlement agent acting for the second defendant in relation to the purchase of the premises by Funwest. The money was paid by Mr Brumer into Paramount's trust account on behalf of Funwest.
During 23 September 2003 the second defendant, as a result of some of his discussions with the plaintiff, prepared in his office at the premises a document on 'Talk of the Town Ballroom & Function Centre' letterhead. The document (the option document) was dated 23 September 2003. It read:
It has been agreed by Colin Paul Whittaker and Jerzy Bartkowski both 50% share holder (sic) in Funwest Pty Ltd, that should either party in the future desire to sell their 50% holding share (sic) in the company known as Funwest Pty Ltd that the other share holder will be given the opportunity to buy out the other partner at the marker (sic) value price of the company (Funwest) at that time of selling.
At some point on 23 September 2003, either during the meeting that occurred in the morning or later that day, the plaintiff and the second defendant signed the option document. The second defendant also placed Funwest's common seal on the option document.
Later in the afternoon on 23 September 2003, after the option document had been signed, the plaintiff, Mr Brumer, the second defendant and Ms Pelka drove to the offices of a law firm, J Parry & Co, in Osborne Park. They did so at the instigation of the second defendant.
At the offices of J Parry & Co the plaintiff, Funwest and the second defendant executed a Deed of Agreement (the Agreement) which had been prepared by a solicitor employed by the firm. The second defendant, acting in his capacity as the director of Funwest, affixed Funwest's common seal to the Agreement. Mr Brumer and Ms Pelka signed the Agreement to indicate that they had witnessed its signing by the plaintiff and the second defendant respectively. The Agreement was not dated at the time of its execution. The plaintiff and the second defendant were each given a copy of the Agreement by the solicitor.
In the Agreement the second defendant was referred to as the First Party, the plaintiff as the Second Party, and Funwest as the Third Party. The recitals to the Agreement were in the following terms:
Whereas:
a)The First Party is a Director and Shareholder in the Third Party;
b)The Second Party wishes to invest monies in the Third Party and to become a Director and Shareholder in the Third Party;
c)The Third Party is acquiring the freehold title to the premises situate at 4 Carson Road, Malaga at which it conducts its business, namely a dance studio under the name or style of “Talk of the Town”; and
d)The First and Second Parties intend to conduct as Directors of the Third Party the business of the Third Party aforesaid upon and subject to the terms and conditions hereinafter set out.
Clauses 1 to 4 of the Agreement were in the following terms:
1.The First Party shall pay to the Third Party upon execution hereof by all parties the sum of $80,000 to be used by the Third Party in order to complete purchase and settlement of the land situate at 4 Carson Road, Malaga.
2.Upon settlement as aforesaid being completed within fourteen (14) days of the payment referred to in paragraph 1 hereof, the First Party shall within sixty (60) days of such date, pay to the Third Party an amount equal to one half (1/2) of the total amount required by the Third Party to complete the said settlement and purchase of 4 Carson Road, Malaga. (The contract price) – less the amount referred to in paragraph 1 hereof.
3.Upon receipt of the contract price, the First and Third Parties shall do and have done all necessary acts and things in order to:
(a)appoint as a Director of the Third Party; and
(b)allocate and transfer a shareholding in the Third Party equal to that held as at the time of execution of this agreement by the First Party to, the Second Party in consideration of the payments aforementioned in paragraph 1 and 2 hereof, and shall contemporaneously with the payment of the balance sum referred to in paragraph 2 hereof provides (sic) to the Second Party, at the cost and expense of the Third Party, including any and all stamp duty, G.S.T., accounting and or legal expenses in respect thereof, non‑market share transfer(s) duly stamped, and all Australian Security Investment Commission forms and documentation so as to enable due registration of the said share transfer(s) and apportionment (sic) of the Second Party as a Director and shareholder in the Third Party.
4.Upon due payment of the balance amount referred to in paragraph 2 hereof the Third Party shall be entitled to pay out there from a sum not exceeding Fifty Thousand Dollars ($50,000.00) to discharge loans from Three (3) unrelated parties in amounts of $30,000.00, $15,000.00 and $5,000.00 respectively who contributed the said sums towards the said purchase and settlement on the purchasers by the Third Party of the land situate at 4 Carson Road, Malaga aforesaid.
Clause 7 of the Agreement provided:
The First and Second Parties are aware that each of them have business interests other than that conducted through the Third Party trading as 'Talk of the Town'. Each Party shall devote such reasonable and necessary time to the conduct of the business of the Third Party as is consistent with the promotion and development of the Third Party business, shall not during the term of their conduct of the Third Party business be or become directly or indirectly involved in or receive a financial benefit from any business or concern which is in competition with the Third Party in the conduct of its business of a dance studio and both parties shall act towards each other and towards the Third Party in the utmost of good faith in this respect.
Clause 8 of the Agreement provided:
The First and the Second Party hereto shall each have the option to acquire from the other, the shareholding of the other in the Third Party, for a price to be mutually agreed.
(a)The Party wishing to dispose of his shareholding shall notify the other Party in writing of such interest;
(b)The other Party shall within thirty (30) days inform the initiating Party of his intention to either acquire or not acquire the said shareholding;
(c)If the other Party wishes to acquire the shareholding in terms hereof and the parties cannot agree on a price therefore within the said thirty (30) day period, then each Party shall obtain from a duly licensed valuer a valuation for the shareholding within a further thirty (30) day period, and the mean average of the valuations so obtained, each at the expense of the respective party, shall be the price of the shareholding to be paid by the acquiring party, and in default of either party obtaining a valuation in this respect within the said period, then any evaluation so obtained by a Party shall be deemed to be the value of the said shareholding and the price to be paid by the acquiring Party accordingly;
(d)The acquiring Party shall then have a further period of sixty (60) days for (sic) the ascertainment of the value of the shareholding prior to obtaining finance in order to acquire the amount of the price to be paid and settlement shall take place within 30 days from the date of such finance approval; and
(e)In the event that the acquiring Party cannot obtain finance within the said period, then the Parties shall do all necessary acts and things in order to sell the business of the Third Party as a going concern and the acquiring Party shall no longer be entitled to the benefit of this paragraph.
Clause 11 of the agreement provided:
In the event of any disagreement between the First and Second Parties as to the use and allocation of the balance sum paid by the Second Party in terms of paragraph 2 hereof, then the Second Party shall be entitled to request the whole of such balance sum (except as referred to in terms of paragraph 4 hereof) to be paid in part discharge and settlement of any mortgage registered as a charge against the land situate at 4 Carson Road, Malaga aforesaid, forthwith.
Clause 13 of the agreement provided:
It is the intention of the Parties that each of the First and Second Parties hereto shall have an equal entitlement to a share in the net operating profit (if any) of the Third Party and neither party shall incur any debt or liability in the name of the Third Party in the usual course of business or otherwise which shall adversely affect the other Parties in this respect.
Thus the Agreement by clause 1 provided that the second defendant rather than the plaintiff was to pay $80,000 to Funwest, and by cl 2 provided that the second defendant rather than the plaintiff was to make the payment of one half of the total amount required to be paid by Funwest to complete the purchase of the premises less the amount of $80,000.
On the morning of 24 September 2003 the plaintiff, the second defendant, Mr Brumer and Ms Pelka attended Ms Greenwell's office. At the request of the second defendant Ms Greenwell prepared for signature by the plaintiff a consent to act as a director of Funwest, and for signature by the second defendant a resolution of Funwest that the plaintiff 'be made a director in anticipation of his completion of a share purchase within 14 days'. The consent to act as director and the resolution appointing the plaintiff as a director of Funwest were signed by the plaintiff and the second defendant respectively while they were at Ms Greenwell's office.
On the same date Ms Greenwell prepared, or arrange to be prepared, an ASIC 'Change to company details' form dated 24 September 2003. The form, which was signed by the plaintiff while he was at Ms Greenwell's office, recorded the appointment of the plaintiff as a director of Funwest as at 24 September 2003. The form was lodged with ASIC by Ms Greenwell's firm later on 24 September 2003.
The plaintiff left Perth and returned to Sydney on 24 September 2003. Before leaving he provided to Mr Brumer a power of attorney which authorised Mr Brumer to act on his behalf in relation to the business generally.
During the period between 24 September 2003 and 6 October 2003 Mr Brumer obtained on the plaintiff's behalf from various sources a further $42,100. Mr Brumer paid this sum to Funwest on behalf of the plaintiff for use by Funwest in the purchase of the premises. Accordingly, the total amount paid by the plaintiff to Funwest prior to completion of the purchase by Funwest of the premises was $122,100.
On 1 October 2003 Ms Greenwell, on the second defendant's instructions, prepared or arranged to be prepared a resolution of Funwest for the signature of the second defendant. The resolution recorded that the plaintiff 'be removed as a director due to failure of agreement to invest'. The resolution was dated 1 October 2003 and was signed by the second defendant on that date. The resolution was signed by the second defendant without the plaintiff's knowledge.
Also on 1 October 2003 Ms Greenwell prepared, or arranged to be prepared, for the second defendant's signature an ASIC 'Change to company details' form which recorded that on 1 October 2003 the plaintiff had ceased to be a director of Funwest. The form was signed by the second defendant as a director of Funwest on 1 October 2003. However, the form was not lodged by Ms Greenwell's office with ASIC on that date.
On 6 October 2003 Mr Brumer spoke to the second defendant at the premises. He asked to see the Agreement. The second defendant produced his copy of the Agreement. Mr Brumer pointed out to the second defendant that the Agreement was not dated. Mr Brumer also expressed to the second defendant concern about the fact that although it was the plaintiff who had made the initial payment of $80,000 to Funwest cl 1 of the Agreement provided that it was the second defendant who was to pay this amount to Funwest.
In response to Mr Brumer's statements the second defendant wrote the date 6 October 2003 on his copy of the Agreement and made a number of handwritten alterations to the document which he initialled. The handwritten alterations which he made were as follows:
1.He crossed out the word 'First' appearing in cl 1, cl 2 and cl 3 and replaced it with the word 'Second';
2.He crossed out the word 'land' appearing in clause 1 and replaced it with the word 'property'; and
3.He crossed out the word 'apportionment' appearing in cl 3(b) and replaced it with the word 'appointment'.
Thus the effect of the handwritten amendments made by the second defendant was that his copy of the Agreement recorded that it was the plaintiff who was to make the payments specified in cl 1 and cl 2, and that it was the plaintiff and Funwest who were to do 'all necessary acts and things' in order to do the things specified in pars (a) and (b) of cl 3.
Settlement of the purchase of the premises took place on 7 October 2003. The total paid by Funwest to complete the purchase of the premises after all additional agent's fees, settlement fees, rates, taxes and other fees were taken into account was $792,223.
During September and October 2003 the business was struggling financially. Accordingly the second defendant was working full time or near full time in his painting business, 'Whittaker's Painting Contractors' (Whittaker's Painting), in order to produce sufficient income to support himself and the business. Given that he was working in his painting business the second defendant engaged Mr Ralph O'Toole to manage the business for him. He engaged Mr O'Toole in late September 2003 or early October 2003. Mr O'Toole ultimately acted as manager of the business for about three years.
On or about 17 October 2003 Mr Brumer made inquiries of Wizard Financial Solutions Pty Ltd (Wizard) about obtaining a loan from Wizard for use in connection with the business. By letter dated 17 October 2003 addressed to Mr Brumer, Wizard provided to Mr Brumer a 'preliminary indication' of the terms by which it 'may be able to arrange a mortgage facility' in the amount of $475,000. In its letter Wizard stated that it required payment of a 'commitment fee' of $1000 plus $100 GST if Mr Brumer wanted to proceed with the application for finance.
On 4 November 2003 the plaintiff signed a 'General Power of Attorney' (the November power of attorney) in favour of Mr Brumer. By the November power of attorney the plaintiff authorised Mr Brumer:
…to make all decision [sic] regarding my ownership of Talk of the Town Dance Studio Ballroom, 6 Carson Rd Malaga 6090 WA. My attorney may make all mamagement, expense and any other relevant decisions on my behalf.
The plaintiff signed the November power of attorney because the power of attorney that he had provided to Mr Brumer prior to his departure from Perth had become lost.
On 17 November 2003 Mr Brumer and the second defendant each paid to Wizard half of the $1,100 commitment fee.
On 19 November 2003 a meeting took place in the offices of a Mr David Moon who was La Trobe's representative in Western Australia. The people present at the meeting included Mr Moon, Mr Brumer and the second defendant. During the meeting Mr Moon expressed concern to the second defendant about the fact that the second defendant had, after obtaining finance from La Trobe, appointed the plaintiff a director of Funwest without La Trobe's consent.
On 20 November 2003 Ms Greenwell arranged for the lodgement with ASIC of the ASIC form signed by the second defendant on 1 October 2003 notifying that the plaintiff had ceased to be a director of Funwest.
Also on 20 November 2003 Mr O'Toole barred Mr Brumer from the premises. Mr Brumer did not return to the premises after this date.
The period of 60 days from settlement of the purchase of the premises referred to in par 2 of the Agreement expired on 16 December 2003. The plaintiff did not, prior to that date or at any later point in time, pay any money to Funwest in addition to the $122,100 that he had paid prior to settlement of the purchase of the property.
On or about 30 March 2004 the plaintiff sent by registered post to the second defendant's home address a letter bearing that date in which he stated, among other things, that he considered the Agreement to be null and void. In his letter the plaintiff demanded that the second defendant return the $126,100 that he had contributed towards 'the purchase of the property' and 'the partnership'. The plaintiff demanded the return of $126,100 rather than $122,100 because at the time of writing his letter he was aware that the total additional amount paid by Mr Brumer to Funwest was $46,100 and believed that this entire amount had been paid by Mr Brumer to Funwest on his behalf. The plaintiff did not realise that $4,000 of the $46,100 had been paid by Mr Brumer as a personal loan by Mr Brumer to Funwest.
For reasons which are not clear the plaintiff's letter was not received by the second defendant. It was returned to the plaintiff by Australia Post because it was 'unclaimed'.
On 15 June 2004 the second defendant and Funwest issued to the plaintiff a 'Notice to Complete' bearing that date (the Notice). In the Notice Funwest and the second defendant asserted that the total amount that Funwest had been required to pay to complete the purchase of the premises was $425,000, and that the plaintiff had only paid to Funwest an amount of $126,000. Accordingly, by the terms of the Notice Funwest and the second defendant required the plaintiff to comply with cl 2 of the Agreement within 14 days by paying $299,000, this being half of $425,000, less $126,000. Again, the assertion in the Notice that the amount paid by the plaintiff was $126,000 as opposed to $122,100 was based on the mistaken assumption that all of the $46,100 paid by Mr Brumer to Funwest after the initial payment of $80,000 had been paid on behalf of the plaintiff.
On 19 June 2006 the solicitors for Funwest and the second defendant sent to the plaintiff, on the second defendant's instructions, a letter bearing that date. In the letter the solicitors asserted that the plaintiff's failure to complete his obligations under the Agreement amounted to a repudiation of the Agreement which had been accepted by Funwest and the second defendant, and that in these circumstances Funwest and the second defendant had forfeited the money that had been paid by the plaintiff under the Agreement.
The $4,000 loan made by Mr Brumer to Funwest has since been repaid to him.
On 7 January 2007 the premises were sold by Funwest for approximately $1,200,000.
Approach to determination of plaintiff's claims
The determination of the plaintiff's various causes of action against the second defendant will turn largely on my findings as to the plaintiff's allegations that the second defendant made a number of misrepresentations prior to the execution of the Agreement. It is therefore convenient to deal with the plaintiff's misrepresentation claim first.
Action for Misrepresentation
Pleaded cases
The plaintiff pleads that the second defendant acting on behalf of Funwest made the following three representations:
1.The second defendant was the sole shareholder in Funwest (the first representation);
2.On the plaintiff paying to the second defendant $80,000 the plaintiff would be given a 50% shareholding in Funwest (the second representation); and
3.The Agreement recorded in writing the plaintiff's and second defendant's earlier agreement that on the plaintiff paying Funwest $80,000 the plaintiff would be given a 50% shareholding in Funwest (the third representation).
The plaintiff pleads that the first representation was made orally in a conversation or conversations that occurred on or about 23 September 2003 between the plaintiff and the second defendant on behalf of Funwest. The plaintiff also pleads that the first representation was made in writing in the Agreement.
So far as the second representation is concerned the plaintiff pleads that it was made orally in a conversation or conversations that took place on or about 23 September 2003 between the plaintiff and the second defendant on behalf of Funwest. The plaintiff further pleads that the second representation was made in writing in the form of the option document.
The plaintiff pleads that the third representation was made orally and by silence. The plaintiff pleads that the third representation was made orally when the second defendant told the plaintiff prior to the execution of the Agreement that the Agreement reflected what they had agreed earlier. As to the making of the third representation by silence, the plaintiff pleads that this occurred when the second defendant failed to inform the plaintiff that the Agreement included a provision that the plaintiff's entitlement to a 50% shareholding in Funwest arose only after payment by the plaintiff of one half of the purchase price of the premises.
The plaintiff pleads that in reliance on one or more of the three representations he paid $80,000 to Funwest on or about 23 September 2003, thereafter executed the Agreement on 23 September 2003, and during the period 24 September 2003 to 6 October 2003 paid to Funwest pursuant to the Agreement a further sum of $42,100.
The plaintiff pleads that the first representation was misleading because at all material times the sole shareholder in Funwest was Ms Pelka, that the second representation was misleading because as the second defendant did not have a shareholding in Funwest he could not, on the payment of the $80,000 by the plaintiff to Funwest, transfer 50% of the shares in Funwest to the plaintiff, and that the third representation was misleading because the Agreement provided that the plaintiff's entitlement to the 50% shareholding in Funwest arose only on his payment of half of the purchase price of the premises.
The plaintiff pleads that by reason of his reliance on each of the three misleading representations he is entitled to rescind, alternatively has already rescinded, the Agreement. He pleads that he rescinded the agreement by a letter which he sent to the second defendant in November 2003 and by a letter which he sent to the second defendant dated 30 March 2003. The reference in the pleading to a letter dated 30 March 2003 is clearly intended to be a reference to the plaintiff's previously referred to letter dated 30 March 2004.
Finally, the plaintiff pleads that by reason of his reliance on the three misleading representations he has suffered loss and damage in the sum of $122,100 alternatively $80,000.
The second defendant pleads that he denies making the first representation, the second representation or the third representation. However, his case as presented at trial, consistently with the evidence that he gave, was that he did make the first representation during his conversations with the plaintiff but did not make the second representation or the third representation.
The second defendant pleads that the first representation was not misleading. He pleads that it was not misleading because he was the beneficial owner of the shares and because the registered owner of the shares, Ms Pelka, was at all times ready, willing and able at his direction to transfer the shares to the plaintiff.
As to the second representation and the third representation, the second defendant pleads that even if they were made, which is denied, they were not misleading because they reflected the agreement arrived at between the plaintiff and the second defendant prior to the execution of the Agreement as well as the terms of the Agreement.
In response to the plaintiff's pleaded rescission of the Agreement by reason of the alleged misleading representations, the second defendant pleads that the plaintiff repudiated the Agreement by not paying an amount equal to half of the amount required to settle the purchase of the premises.
Applicable legal principles – misrepresentation and rescission
A misrepresentation is a representation that induces or is capable of inducing error: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191; Johnson Tiles Pty Ltd v Esso Australia Ltd [2000] FCA 1572; (2000) 104 FCR 564 [63]. Whether a representation induces or is capable of inducing error is to be determined objectively in the context of the evidence of the alleged representation and the relevant surrounding facts and circumstances: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 [102].
As a general proposition a representation can amount to a misrepresentation even though the person making the representation did not intend to mislead the representee: Global Sportsman Pty Ltd v Mirror Newspapers Ltd[1984] FCA 180; (1984) 55 ALR 25 [16] ‑ [17]; Johnson Tiles v Esso [66].
If a misrepresentation induces a person to enter into a contract he or she may elect to rescind the contract. Accordingly for the misrepresentation to give rise to a right to rescind the contract the representee must have relied on the misrepresentation. The misrepresentation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract: Gould v Vaggelas [1985] HCA 85; (1984) 157 CLR 215, 236.
A person who is induced to enter into a contract by a misrepresentation has a right of election whether to rescind or not. If the representee chooses to exercise the right to rescind then a court may declare the contract retrospectively to be void from the beginning. If, on the other hand, the party chooses not to rescind, or the right to rescind has been lost, then the contract is perfectly valid and enforceable: N C Seddon and M P Ellinghaus, Cheshire and Fifoot's Law of Contract, 9th Australian edition, [11.45].
Rescission of a contract entails the restoring of the parties to the status quo prior to the contract. It is therefore a prerequisite to the right to rescind that restoration to the status quo that existed before the contract should be substantially possible: Maguire & Tansey v Makaronis [1997] HCA 23; (1997) 188 CLR 449.
A person who is induced to enter into a contract by a misrepresentation may exercise his or her right to rescind by clear notice or conduct that indicates to the other party that the contract is cancelled: Cheshire and Fifoot's Law of Contract [11.46]. Rescission is effective from the time of the notification of election to rescind: Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26, 39. If it is impossible to communicate with the representor then it appears that the representee rescinds by taking all necessary and reasonable steps to make it known that the contract is cancelled: Cheshire and Fifoot's Law of Contract [11.48]; Car and Universal Finance Co Ltd v Caldwell [1964] 1 All ER 290.
If a party rescinds a contract and the court subsequently declares the contract to be void from the beginning, the court can make such indemnification orders as are necessary to achieve substantial restitution: Cheshire and Fifoot's Law of Contract [11.53].
The evidence
In order to deal with the plaintiff's misrepresentation claim it is necessary to set out in some detail the evidence given by the various witnesses which bears upon the allegations the subject of the claim. The evidence was as follows.
The plaintiff
He lives in Sydney. He is a licensed taxi operator and owner.
He has known Mr Brumer for many years.
In September 2003 he received a number of phone calls from Mr Brumer. During the phone calls Mr Brumer asked him to come to Perth to help him save a friend's ballroom dance studio which was in financial stress. Mr Brumer's friend was the second defendant.
In the first few phone calls Mr Brumer told him that the second defendant wanted $200,000 for 50% of the business plus half of the contract price for the land.
In the second stage of phone calls Mr Brumer told him that the second defendant wanted $100,000 for a 50% share of the business and half the contract price for the land.
He was not interested in what Mr Brumer was telling him. He was quite comfortable in Sydney. In June 2000 he had purchased an apartment in Sydney.
Finally Mr Brumer called him again. During this call Mr Brumer told him that the second defendant was going to give him 50% of the business for free on the condition that he came to Perth immediately with $15,000. He decided to travel to Perth out of curiosity.
He arrived in Perth on Sunday 21 September 2003.
On his arrival in Perth Mr Brumer took him to the premises. He was introduced to the second defendant and others. Nothing very much happened on that night.
He and Mr Brumer met with the second defendant again on the morning of Monday 22 September 2003. They went to the second defendant's office in the premises. When they got to the second defendant's office the real estate agent who was facilitating the sale of the premises, Mr George Hilton, was also present.
At the meeting the second defendant asked for $80,000. The situation became very unpleasant. He is a short tempered man and he became angry because he had been led to believe that he would be given half of the business for $15,000. He directed his anger at Mr Brumer. He was unprepared for the request of $80,000.
The second defendant confirmed that he had told Mr Brumer to say $15,000. The second defendant could not explain why he had said this. Mr Hilton tried to turn the unpleasant situation into a joke by saying, 'That was our way to encourage you to come'.
By this stage he was just about at the door. He was not interested. He had always had some money but $80,000 for somebody who was functioning in his income category was a large amount of money.
The second defendant was insistently asking him to stay in the room and consider the possibility of raising the required $80,000. Mr Brumer was also very interested in saving the business and was also insisting that he should stay and consider the possibility of raising the money. Mr Brumer said that he would consider providing financial help if required.
At this point he did not know if he was in a position to provide $80,000. Accordingly, he and Mr Brumer agreed that they would go and visit Wizard and the Commonwealth Bank in order to explore this issue. He decided to go to Wizard because he had a redraw facility with Wizard as a result of having made overpayments on the loan he had obtained to buy his apartment in Sydney. He had a term deposit with the Commonwealth Bank in Sydney.
On Monday 22 September 2003 he was only able to establish how much money he could have available. He ascertained that he could raise a total of $69,000. Mr Brumer offered to fund the additional $11,000.
He and Mr Brumer met with the second defendant again early in the morning on Tuesday 23 September 2003. He wanted to know what he was going to get for his $80,000. He cannot quote what the second defendant said to him. However, the content of what the second defendant said was that if he could raise $80,000 the second defendant would give him 50% of the shares in Funwest and a position of director. The second defendant said that he was the sole shareholder in Funwest. The second defendant said, 'We found the partnership. You will deal with me. I run the business. I am the shareholder of the company'. The second defendant said that in order to proceed they would have to form a partnership.
He was not convinced about the deal because it was all very sudden. $15,000 had turned into $80,000 and he did not have any real interest in dancing. However, the second defendant said something else 'that was a decisive argument that convinced' him to proceed with the deal. The second defendant said that he was 67, that after three years at the age of 70 he would want to get out of the business and that the plaintiff would have to buy him out. He thought that if the situation eventuated where the second defendant did want to get out of the business, even if after four or five years, he would turn the premises into a fitness studio. He told the second defendant that he would need some document to reflect the arrangement for him to buy the second defendant out.
At the very end of this conversation the plaintiff and Mr Brumer came to the conclusion that borrowing more money against the assets of the business would not be a wise thing. He said that he had two taxis in Perth and if 'that eventuates I may sell one taxi plate and that should solve the problem'. His taxi plate was at that time worth around $300,000.
At this point he and Mr Brumer left the office of the second defendant to obtain the $80,000. This took almost the whole day. He obtained a bank cheque from the Commonwealth bank for $69,000. Mr Brumer obtained $11,000. They returned to the second defendant's office. The $80,000 was handed over to the second defendant. He handed it over to Mr Hilton. Mr Hilton then left the second defendant's office.
He paid over the $80,000 to become a partner in the business; for 50% of the shareholding in Funwest. The purchase of the land was a secondary issue. He understood from what the second defendant had 'conveyed' to him that the business was in financial trouble and that if Funwest did not buy the premises 'they' would simply tell him to get out.
He understood from conversations between the second defendant and Mr Hilton for which he was present that the purchase price of the premises was around $700,000.
While he was away from the second defendant's office obtaining the funds the second defendant prepared the option document. After he had handed the money over the second defendant showed him the option document and he and the second defendant signed it.
The second defendant said that they now had to go to his lawyer to sign a deed of agreement. This had not been previously discussed.
He went to see the solicitor with the second defendant, Mr Brumer and Ms Pelka. They all went in the one car. Ms Pelka drove. They got to the solicitor's office in Osborne Park between 4.00 pm and 5.00 pm.
When he arrived at the solicitor's office the Agreement had already been prepared. The solicitor said that she was in a hurry. He was tired and a bit stressed. He was not convinced that what he was doing was the right thing. The solicitor read out the Agreement in a hurry. He is not sure if she read out all of the Agreement. He does not remember which parts of the Agreement the solicitor read out. It is possible she read out clauses 2 and 3. Nothing that the solicitor read out caused him to think that the terms of the Agreement were different to the agreement that he had arrived at with the second defendant.
The solicitor asked he and the second defendant if they knew what they were doing. He and the second defendant said 'yes' and then signed the Agreement.
He read part of the Agreement at the solicitor's office at the time that he signed it. He does not recall what parts he read. He did not notice that the Agreement was not dated when he signed it. At the time that he signed the Agreement he knew that when he was provided with a legal document he should read it. He was at the solicitor's office for about 20 to 30 minutes.
The Agreement was supposed to reflect the agreement that he had reached with the second defendant, namely that on the payment of $80,000 to Funwest he would become a 50% shareholder in Funwest and a director of Funwest.
On the next day, 24 September 2003, he met the second defendant. He is not sure if the meeting was in the second defendant's office.
The second defendant took him, Mr Brumer and Ms Pelka to the second defendant's accountant's office. At the accountant's office he was appointed a director of Funwest. He signed the consent to act as a director dated 24 September 2003. He does not recall there being any discussion about shareholdings while he was at the accountant's office. After attending the accountant's office Mr Brumer took him straight to the airport.
During the drive to the airport he still did not feel positive about the deal. He felt uncomfortable about what he had done. He had the feeling that he would always be treated as an intruder because he did not have anything to do with the business. He therefore said to Mr Brumer that if the second defendant asked for any more money he was to cancel the deal. He said this to Mr Brumer several times on the way to the airport.
He knew that settlement of the purchase of the premises was to take place on 7 October 2003 because the second defendant had mentioned this to him.
While he was in Perth the second defendant provided him with a mobile phone number so that he could contact the second defendant. He thinks the mobile phone number that he was provided with was the phone number of Ms Pelka.
Prior to 7 October 2003 he made several calls to the mobile phone number that he had been given. The second defendant never returned his calls. The second defendant has never made any phone call to him since they met.
Prior to 7 October 2003 he also made a number of phone calls to Mr Brumer. However, he was not able to get hold of Mr Brumer.
On 10 October 2003, which was his birthday, Mr Brumer called him. Mr Brumer had always been very enthusiastic about the agreement. Mr Brumer told him that the deal had been done and that he had borrowed an extra $46,100. He subsequently reimbursed Mr Brumer for $42,100 of this amount.
At some later stage he read his copy of the Agreement and 'sort of confronted in my mind that date of agreement with one page agreement and with everything else'. He found the Agreement quite confusing. The Agreement said that the second defendant was to pay the $80,000 rather than him. When he read the Agreement he thought that the reference to the second defendant in cl 1 was supposed to be a reference to him. Further, the Agreement said that the second defendant was to pay an amount equal to half of the amount required to settle the purchase of the property. He considered that this was illogical. He considered that the Agreement could have been interpreted as requiring him to pay the amount referred to in cl 2 which was completely contrary to what he and the second defendant had agreed earlier.
After reading the Agreement he made some phone calls to the second defendant. He wanted the second defendant to explain differences in the Agreement. He never managed to get hold of the second defendant. He left messages for the second defendant but the second defendant never rang him.
In addition to attempting to ring the second defendant he also sent a letter to the second defendant by ordinary mail. This was in October 2003.
One night Mr Brumer rang him. It was late. Mr Brumer was almost crying. Mr Brumer told him that the second defendant and someone else had removed him from the office of the premises. Mr Brumer also said that prior to this occurring he had a heated exchange in Mr Moon's office.
After he had been told by Mr Brumer that Mr Brumer had been removed from the premises he decided that the deal was off. From this time on he wanted his money back.
Some time after speaking to Mr Brumer he received a phone call from Mr Ralph O'Toole. He received the call at night. He was in his taxi. He did not know Mr O'Toole. Mr O'Toole was 'pouring buckets of rubbish' on Mr Brumer. Mr O'Toole was calling Mr Brumer an idiot and a destructive person who was acting against the interests of the business. Mr O'Toole said that he had had to remove Mr Brumer. He already knew this from speaking to Mr Brumer. He does not remember exactly what he said to Mr O'Toole. He thinks he told Mr O'Toole to get lost.
After his conversation with Mr O'Toole he sent a letter to the second defendant. It was an abusive letter. He did not keep a copy of the letter.
He never received any shares in Funwest. He never got his $122,100 back.
He became aware he was no longer a director of Funwest on 19 November 2003. Mr Brumer told him this. Mr Brumer also told him that the holder of the shares in Funwest was Ms Pelka. His removal as a director of Funwest occurred without his knowledge.
If he had known that Ms Pelka was the sole shareholder in Funwest he would not have considered investing any money given the specific circumstances of the business. If he had known of the involvement of any other party he would not have proceeded with his investment. He had decided to form a one to one partnership.
The failure by the second defendant to respond to his attempts to communicate with the second defendant made him think that he was an idiot and that he should not have done it, that is, the deal. He felt cheated by reason of being removed as a director.
He did not see the Wizard letter on 17 October 2003. He does not remember if Mr Brumer told him before 17 October 2003 that he was going to make an application to Wizard for the loan. He did not make out any cheque for $550 to pay for half of the application fee. He never paid to Mr Brumer $550 so that Mr Brumer could make the application. He does not recall providing financial documentation to Mr Brumer so that Mr Brumer could make the application for the loan.
He never told the second defendant that he had sold one of his taxis.
He never told the second defendant that he was going to provide the funds required within 14 days.
He never agreed to pay half of the purchase price of the premises. He never saw the settlement statement prepared by Paramount for the purchase of the premises until much later.
He understood that Funwest was going to be purchasing the premises and that when he acquired 50% of the shareholding in Funwest he would become a 50% owner of the business and the premises. He also understood that on becoming a 50% owner of the business and the premises he would become 50% responsible for the mortgage. He never signed a director's guarantee for the mortgage.
After his discussion with the second defendant on 22 and 23 September 2003 he understood what finance arrangements had been put in place for the purchase of the premises by Funwest. He understood that the second defendant could not provide the deposit required by the finance company and therefore could not obtain the loan. This was why the second defendant needed extra cash.
He did discuss with the second defendant the obtaining of the loan of $580,000 from La Trobe. He thinks it was Mr Brumer's idea to discuss this issue. He at the time had a loan with Wizard which was at an interest rate of 6.5%. The second defendant accepted that it would be better and easier to refinance the loan which Funwest had obtained through La Trobe given that the interest rate being charged by La Trobe was 11%.
He has the original of the letter that he sent to the second defendant dated 30 March 2004. The original of the letter was returned to him because it was not collected by the second defendant.
Martin Brumer
He is a pensioner.
On an occasion in around the middle of 2003 he was dancing with Ms Pelka. While they were dancing she asked him if he could help the second defendant to buy the premises because otherwise it was going to shut down. He laughed. He said he had no money to help her. However, a few minutes later he remembered that the plaintiff had previously indicated to him that he might want to retire to Perth in the future and that if a business opportunity arose he could be interested. He therefore told Ms Pelka that the plaintiff could be interested. Ms Pelka then called him into the office where the second defendant was. The second defendant said to him that if his friend was interested he would have to pay for one half of the premises plus $200,000 for half of the business.
After speaking to the second defendant he rang the plaintiff and told him about his discussion with the second defendant. The plaintiff said 'no' to the proposal. He told the second defendant that the plaintiff had said no.
The second defendant called him a few days later. The second defendant said that if the plaintiff paid $100,000 for half of the business plus half of the cost of the premises that would be sufficient.
After speaking to the second defendant he rang the plaintiff. The plaintiff again said 'no' to the business proposal. He informed the second defendant of the plaintiff's response. He thought that would be the end of the matter.
In late September 2003 the second defendant called him to his office. There were two or three other men present. He thinks one was a Mr Hilton from a real estate agency and another was a Mr Pattinson who worked with a finance company. There might have been another man present but he is not sure. The second defendant told him in front of the other men present that if the plaintiff came to Perth with $15,000 the plaintiff would get half of the business for free.
After having this conversation with the second defendant he rang the plaintiff and told him what the second defendant had said. The plaintiff was not really sure about the proposal but he decided to come to Perth to have a look at the business.
A few days later the plaintiff came to Perth. He arrived on Sunday 21 September 2003.
He met the plaintiff at the airport and drove him straight to the premises. The second defendant was there. The second defendant introduced the plaintiff to some of his friends. It was a nice atmosphere. The ballroom was in full flight. There were a lot of people there.
The plaintiff pleads that in the circumstances it would be unconscionable for the plaintiff to be held to the Agreement, that the second defendant engaged in unconscionable conduct contrary to s 51AA of the Trade Practices Act 1974 (WA) ('the TPA') and s 19(2) of the 2010 FTA, and that the plaintiff is entitled to orders setting the Agreement aside and requiring the second defendant to repay the sum of $122,100 to the plaintiff.
As I have already indicated, the 2010 FTA does not apply to the present case. Accordingly, the plaintiff's plea in reliance of s 19(2) of the 2010 FTA is misguided.
The FTA does not contain an equivalent provision to s 51AA of the TPA. Accordingly, the plaintiff's unconscionable conduct claim must necessarily be read as an allegation that the second defendant was a party within the meaning of s 75B of the TPA to unconscionable conduct engaged in by Funwest contrary to s 51AA of the TPA. However, for reasons that will become apparent, not much turns on this issue.
The second defendant pleads a denial of the allegation of unconscionability, a denial of the allegation that the plaintiff was unaware that the second defendant did not have a shareholding in Funwest, and a denial of the allegation that the second defendant was aware or ought to have been aware that the plaintiff was mistaken as to the second defendant's shareholding in Funwest. The second defendant further pleads that the mistake was irrelevant to the performance of the Agreement by the plaintiff.
The second defendant does not admit that he failed to inform the plaintiff that he was not a shareholder in Funwest and pleads that the matter is irrelevant to the performance of the Agreement by the plaintiff.
The second defendant's case is that the plaintiff had no entitlement to the shares in Funwest because he breached the terms of the Agreement.
The second defendant denies the allegation of unsconscionability.
Analysis
The plaintiff did not ultimately press his claim of unconscionable conduct. As his counsel conceded in his closing submissions, 'the way the evidence panned out I'd be hard pressed to persuade the court that the [second defendant] had knowledge that he was not a shareholder at the time he made the representations'.
I think that counsel's concession was fairly made. I am satisfied on the evidence to which I have referred in dealing with the plaintiff's misrepresentation claim that the second defendant, at the time of making the first representation, believed, albeit wrongly, that he was the sole shareholder in Funwest. Accordingly, the plaintiff has failed to establish the allegation of fact which underpins his claim of unconscionable conduct. I therefore dismiss the claim.
Counterclaim
Pleaded cases
The second defendant pleads in his counterclaim that in breach of the Agreement the plaintiff refused to pay one half of the total amount required to settle the purchase of the premises less the $80,000, and that he has suffered loss and damage as a result. The pleaded damage is interest and fees charged on loans secured on the second defendant's residence which the second defendant asserts he had to obtain as a result of the plaintiff's failure to comply with the terms of the Agreement. The total amount claimed by the second defendant is $33,557.20.
The second defendant further pleads that the plaintiff breached cl 7 of the Agreement by failing to devote any time to the business and that by reason of the plaintiff's breach of cl 7 he has suffered loss and damage in that he was required to employ a manager to do the work that the plaintiff should have done, the cost of the manager being $204,000.
The plaintiff denies the alleged breaches of the Agreement.
The second defendant did not actively press his counterclaim at trial.
Analysis
The date for the payment of the contract price pursuant to cl 2 of the Agreement was 16 December 2003. The plaintiff had ascertained well prior to this date that the second defendant was not, as stated in the Agreement, the shareholder in Funwest. In these circumstances I do not consider that it was a breach of the Agreement for the plaintiff to refuse to pay half of the amount paid for the premises less the $122,100 already paid.
I am not satisfied that the plaintiff breached cl 7 of the Agreement by failing to devote any time to the business. When cl 7 is read in the context of the Agreement as a whole, it is clear that it was not intended to, and did not, operate so as to impose any obligations on the plaintiff until the plaintiff became a director of, and 50% shareholder in, Funwest. As the plaintiff never became a director of, and 50% shareholder in, Funwest he was not obliged to devote any time to the business.
For the reasons stated I dismiss the second defendant's allegations of breach of the Agreement made in the counterclaim.
The second defendant did not adduce any evidence in support of his claimed damages. Therefore even if I had found that the plaintiff had breached the Agreement as alleged by the second defendant I would have awarded nominal damages only.
Application under s 77(3) of FTA
I return to the plaintiff's application for an order pursuant to s 77(3) of the FTA declaring the Agreement void from its beginning.
Not surprisingly, neither party has any desire to enforce performance of the Agreement. Even if they did it would be impossible to do so. Funwest sold the premises in January 2007 and on 12 August 2010 ceased to exist. The Agreement is for all intents and purposes at an end. Moreover, given my findings on the plaintiff's breach of contract claim and the second defendant's counterclaim, neither party will be prejudiced by an order declaring the Agreement void from its beginning. In these circumstances, and despite the impossibility of returning the parties to the status quo prior to the contract, I consider that it is appropriate to make an order under s 77(3)(a) declaring the Agreement void from its beginning, that is, from the date of its execution.
Rectification
Given my decision to make an order declaring the Agreement void from its beginning, it is not necessary for me to deal with the second defendant's claim for rectification of the Agreement. However, I will for the benefit of the parties state the conclusions that I would have reached on the issue of rectification if I had not declared the Agreement void.
Pleaded cases
Both parties accept that an error was made in the drafting of cl 1 and cl 2 of the Agreement in that it must have been the intention of the drafter for the references in cl 1 and cl 2 to the 'First Party' to be references to the 'Second Party'.
The second defendant pleads that the Agreement did not accurately record the agreement that had been arrived at between the parties because the parties had the common intention that the plaintiff would pay $80,000 to Funwest, that the plaintiff would subsequently pay half of the amount required to settle the purchase of the premises and that upon receipt of this amount 50% of the shares in Funwest would be transferred to the plaintiff and the plaintiff would be appointed a director of Funwest.
The plaintiff's case, as is apparent from his misrepresentation and misleading or deceptive conduct claims, is that while he did agree with the second defendant to pay $80,000 for 50% of the shares in Funwest, he never agreed to pay any further amount for those shares.
Applicable legal principles
A party seeking rectification must satisfy the court that there was either a concluded antecedent agreement which was not carried into effect in the written instrument, or there is a disconformity between the words of the instrument and what was the common intention of the parties at the time the contract was executed: Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336, 350 - 351; Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365, 386 ‑ 388; JM Kelly (Project Builders) Pty Ltd v Toga Development No 31 Pty Ltd [No 5] [2010] QSC 389 [8] [14].
The burden of proving mistake by both parties is upon the party that alleges that the agreement ought to be rectified: Pukallus v Cameron (1982) 180 CLR 447.
Analysis
For reasons that are apparent from my findings of fact in relation to the plaintiff's actions for misrepresentation and misleading or deceptive conduct, I am satisfied that the common intention of the parties at the time of the execution of the Agreement was as follows:
1.The obligation for the payment of the $80,000 was to be imposed on the plaintiff, not the second defendant; and
2.The plaintiff was to pay half of the final purchase price of the premises less the amount of $80,000 in consideration of being appointed a director of Funwest and having allocated to him 50% of the shares in the company.
In these circumstances I would, if I had not declared the Agreement void, have made an order for the rectification of the Agreement by replacing the references to the 'First Party' in cl 1 and cl 2 with references to the 'Second Party' and by inserting after the word 'appoint' in cl 3(a) the words 'the Second Party'.
Conclusion
I uphold the plaintiff's claims against the second defendant for misrepresentation and misleading or deceptive conduct contrary to s 10 of the FTA. I award the plaintiff damages in the amount of $80,000. I also award the plaintiff interest on the amount of $80,000 calculated from 23 September 2003 at the rate provided for by s 32 of the Supreme Court Act 1935 (WA).
I will make a declaration pursuant to s 77(3)(a) of the FTA that the Agreement is void from its beginning.
I dismiss the remaining claims of the plaintiff. I dismiss the second defendant's counterclaim.
I will hear from the parties as to the precise terms of the orders which should be made to give effect to my judgment. I will also hear from the parties as to costs.
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