Bevanere Pty Ltd v Gaetan Djino Lubidineuse

Re: BEVANERE PTY LIMITED
And: GAETAN DJINO LUBIDINEUSE; SUZETTE MAURICETTE LUBIDINEUSE; ROBERT GERVAIS
LEZARE and BRIGITTE MARGAREET LEZARE (1985) 7 FCR 325
No. G336 of 1984
Trade Practices
59 ALR 334
(1985) ATPR para 40 - 565

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Morling(1), Neaves(1) and Spender(1) JJ.

CATCHWORDS

Trade Practices - Consumer protection - sale of business - whether respondent engaged in misleading conduct - whether conduct "in trade or commerce" - whether s.52 limited to conduct relating to consumers.

Trade Practices Act 1974, s.52

Trade Practices - Misleading and deceptive conduct - Sale of business - Whether in trade or commerce - Whether statutory prohibition confined to statements directed to public - Trade Practices Act 1974 (Cth), s 52.

HEADNOTE

Held: (1) That, where a company sold its business as a going concern, the sale and negotiations leading up to it constituted conduct "in trade or commerce" within the meaning of that expression in s 52 of the Trade Practices Act 1974.

Re Ku-ring-gai Co-Operative Building Society (No 12) Ltd (1978) 36 FLR 134, applied.

O'Brien v. Smolonogov (1983) 53 ALR 107, distinguished.

(2) Section 52 is not confined to statements directed to the public or some identifiable section of it.

Hornsby Building Information Centre Pty Ltd v. Sydney Building Information Centre Ltd (1978) 140 CLR 216, applied.

Menhaden v. Citibank NA (1984) 1 FCR 542 at 545-546 per Toohey J., referred to with approval.

HEARING

Sydney, 1985, February 26; April 24. #DATE 24:4:1985
APPEAL

Appeal from judgment and orders of Wilcox J.

S J Archer and T J Hancock, for the appellant.

W M Gummow, for the respondents.

Cur adv vult

Solicitors for the appellant: Allen Allen & Hemsley.

Solicitors for the respondents: Herbert Smith & W B Phillips.

FPC

ORDER

Appeal dismissed.
Appellant to pay respondents' costs.

Appeal dismissed

JUDGE1

This is an appeal from a decision of a judge of the Court in proceedings arising out of the sale by Bevanere Pty. Limited (the appellant) to Suzette Mauricette Lubidineuse and others (the respondents) of the business of a cosmetic clinic. The respondents claim that in discussions preceding the making of the contract the appellant engaged in conduct that was misleading or deceptive and that such conduct constituted a breach of s.52 of the Trade Practices Act 1974. His Honour found in favour of the respondents and made a declaration that they had established a contravention of Part V of the Act entitling them to recover any loss or damage they had sustained as a result of the contravention. The appellant appeals from that decision. It has been agreed between the parties that the assessment of damages consequent upon his Honour's decision should await the outcome of the appeal.

The principal of the appellant is Mrs Deidre Prussak. She commenced in the beauty industry in 1961 and has had extensive experience in it. She specialises in scar coverage. In 1978 she opened the Deidre Prussak Cosmetic Clinic in the Strand Arcade, Sydney. The clinic provided general beauty services, with some special interest in scar problems. Mrs Prussak managed the business, assisted by three or four staff. Mrs Kostic commenced at the clinic in July 1979. She became the most senior employee and acted as "head girl". Her main function as such was client liaison which involved arranging appointments, receiving clients and ensuring that they were satisfied with their treatment. Mrs Prussak denied that Mrs Kostic had any managerial role but the trial judge found that she played a key role in the running of the clinic and the maintenance of customer support for it. Another employee, Miss Antonia Molinero, worked in the clinic from May 1982 until May 1983 and again from August 1983 until May 1984. According to her, Mrs Kostic was the "head girl" and was very friendly with the clients of the business.
Mrs Prussak decided to sell the business in mid-1983. She retained a business agent who advertised the business for sale, the asking price being $45,000 inclusive of stock. Shortly thereafter the price was reduced to $42,000 inclusive of stock. Mrs Lubidineuse, the second respondent, is a professional beautician who came to Australia from France in 1981. She saw the advertisement and contacted the agent. She and her husband visited the clinic on 16 July 1983 and spoke to Mrs Prussak about the business and the staff. There was conflicting evidence as to what was said during this conversation and it is unnecessary to refer to it in detail. However, it appears that shortly after the July meeting the respondents made an offer for the business and stock but the offer was refused and negotiations then lapsed.
In mid-September negotiations were re-opened. The learned trial judge found that it was likely that the agent initiated the fresh negotiations, although the evidence on that matter was not clear. On 19 September Mrs Lubidineuse and Mrs Lezare, the fourth respondent, had a meeting with Mrs Prussak. Both Mrs Lubidineuse and Mrs Lezare claimed that Mrs Prussak said that Mrs Kostic would stay on after the sale of the business. According to Mrs Prussak, she said only that, if they were going to retain any of the existing staff, then Mrs Kostic and Miss Dibbs, another employee, should be retained.
The respondents decided to purchase the business at or about the time of the meeting on 19 September. A written contract of sale was entered into on 12 October. Between 19 September and 12 October Mrs Lubidineuse paid several visits to the clinic during which she met and talked to the staff and told them of some of the changes that she proposed to make in the running of the business. On 11 October the four respondents discussed with Mrs Prussak the arrangements for the take over of the business. Each of the respondents gave evidence that, on that occasion, Mrs Prussak stated that Mrs Kostic would stay.
The learned trial judge found that although the continued employment of staff, and of Mrs Kostic in particular, was discussed by the parties, it was unlikely that any hard commitment was made by Mrs Prussak regarding Mrs Kostic prior to 19 September. In his Honour's careful judgment he examines the evidence of the several conversations which preceded the signing of the contract. He found that, in executing the contract and in proceeding with their arrangements, the respondents placed reliance upon an expectation that the services of Mrs Kostic would be likely to be available to them. He further found that this expectation was a product both of statements made from time to time by Mrs Prussak during the negotiations, including the discussions held on 19 September and 11 October, and common assumptions underlying informal conversations in the period between those two dates.
At some stage prior to 12 October, Mrs Kostic began a search for premises in which she could establish her own beauty salon. During the week commencing Monday, 3 October, her husband paid a deposit of $1172 on a lease of premises in a building immediately opposite the Strand Arcade in George Street, Sydney, though the deposit was refundable if she did not proceed with the lease. The trial judge found that she had reached a firm, though not yet irrevocable, decision to leave and open her own business some days before 12 October.
On Friday, 14 October, Mrs Kostic gave Mrs Lubidineuse notice that she proposed to leave at the end of the following week, saying nothing about her intention to open her own business across the road. In the event, Mrs Kostic was requested to finish up on the following day and she did so. On or about 25 October Mrs Kostic opened her business at 375 George Street. Miss Molinero gave evidence of having visited Mrs Kostic's business premises and of having seen there many persons who had been customers of the Deidre Prussak Cosmetic Clinic.
Mrs Kostic gave evidence, which was accepted by the trial judge, that she had not thought of leaving the clinic until after Mrs Lubidineuse commenced to visit the business. He accepted that there was a personality conflict between the two women and that Mrs Kostic was unhappy about some of the proposed changes that Mrs Lubidineuse proposed to effect.
It was the respondents' case that, whatever the cause and time of Mrs Kostic's decision to leave the clinic, Mrs Prussak was aware of that decision before the contract was signed and that her failure to disclose that information constituted conduct that was misleading or deceptive. Miss Molinero gave evidence of a conversation between Mrs Kostic and Mrs Prussak that she claimed to have overheard on about 5 October. She said that Mrs Kostic told Mrs Prussak that she would be setting up her own beauty therapist business and that she had "found a place across the road." According to Miss Molinero, Mrs Prussak said to Mrs Kostic - "Would you please not mention anything until the contract is signed, until everything is fixed up." She also said that Mrs Kostic said that "she would leave within the week that the new owners would take over." It was conceded on the hearing of the appeal that this conversation was of critical importance since his Honour's finding that the appellant's conduct was misleading or deceptive was based substantially upon it. Counsel for the appellant accepted that, if Mrs Prussak said to Mrs Lubidineuse that Mrs Kostic would stay on as an employee of the business, knowing that she would not do so, that would have amounted to misleading or deceptive conduct.
After a careful examination and weighing of the evidence the learned trial judge concluded that he should accept Miss Molinero's account of the conversation that she claimed to have overheard on or about 5 October, notwithstanding the denials of Mrs Prussak and Mrs Kostic that they used the words attributed to them by Miss Molinero. He found that, upon the probabilities, Mrs Prussak was aware, prior to the date of contract, that Mrs Kostic intended to leave her employment at the clinic in the near future and to establish a competitive business in the near vicinity and that, notwithstanding, she allowed the respondents to purchase the business in the belief that Mrs Kostic would stay on indefinitely.
The first question that arises on the hearing of the appeal is whether this finding was erroneous. His Honour approached the resolution of the conflict of testimony between the witnesses on the basis that there was no matter of demeanour that caused him to accept or reject the testimony of any particular witness. He arrived at his finding by reference to a number of incidental matters and the argument for the appellant concentrated on the reliance placed by his Honour on these matters. It was said that none of them provided a basis for preferring the testimony of Miss Molinero to that of Mrs Kostic and Mrs Prussak.
Notwithstanding the argument put to us, we are not persuaded that the trial judge erred in his findings of fact. It was argued that he misunderstood the evidence given by Miss Molinero about her conversations with Mrs Kostic. We do not think this criticism is borne out by an examination of the whole of the judgment under appeal. It was also said that there was a flaw in his Honour's reasoning in that the sequence of events deposed to by Miss Molinero in her evidence did not reconcile with the uncontradicted evidence of Mrs Kostic as to events in that sequence. Again we do not think this criticism is made out. According to Mrs Kostic, her husband began in October to look for suitable premises which he found within the space of two weeks. Her evidence was that she decided to move into her own business on 13 October 1983 and there was no evidence to contradict this assertion. However, Mrs Kostic admitted that in the week commencing 3 October a deposit was paid on a lease of the premises in which she proposed to establish her own business. She and her husband must have been looking for premises for some time before the deposit was paid.
Although his Honour did not obtain assistance in determining issues of credit from the demeanour of the witnesses, he nevertheless formed views about their general reliability, and expressed them in his judgment. For instance, he found some support for Miss Molinero's credibility in her evidence that she had visited Mrs Kostic's new premises and had there seen persons who had been former clients of the Deidre Prussak Clinic. In the course of giving this evidence she was handed a list of names of persons who were clients of the clinic at the date of sale and who were claimed to have not subsequently patronized the business. She ticked nine names as being the names of persons whom she had seen at Mrs Kostic's premises. Mrs Kostic denied that Miss Molinero had ever visited her salon whilst it was open to customers, but she did concede that eight of the nine persons whose names were ticked were, in fact, customers of her salon. His Honour said that it was conceivable that Miss Molinero, knowing the names of some of Mrs Kostic's friends and special clients, astutely guessed those who had transferred their business to her but that this was an unlikely explanation of such a high degree of accuracy. He thought the exercise tended to confirm Miss Molinero's reliability.
Counsel for the appellant argued that since the list shown to Miss Molinero was a list furnished by the respondents of the customers lost to them after the business was purchased, it was inevitable that the names ticked by Miss Molinero would be of persons who were former clients of the Deidre Prussak Clinic. Whilst this circumstance did, to a degree, diminish the support for Miss Molinero's credibility from her exercise of ticking the list, it did not destroy it. There were names of persons on the list who were former clients of the Deidre Prussak Clinic but who did not attend Mrs Kostic's new premises and none of those names was ticked by Miss Molinero. We think his Honour was entitled,when assessing Miss Molinero's credibility, to place some reliance on her accurate ticking of the list.
Having considered all the evidence and his Honour's reasons for preferring to accept Miss Molinero's account of the critical conversation with Mrs Kostic and Mrs Prussak, we do not think that any error has been shown in his findings that Mrs Prussak was aware, prior to the signing of the contract, that Mrs Kostic intended to leave her employment in the near future and to establish a competitive business in the near vicinity and that, despite this awareness, she allowed the respondents to purchase the business in the false belief that Mrs Kostic would stay on indefinitely. That belief was engendered by Mrs Prussak's statement to Mrs Lubidineuse, after she had been told by Mrs Kostic of her plans to establish her own business, that Mrs Kostic was going to stay on as an employee of the business being sold. In these circumstances we think his Honour was correct in finding, on the evidence, that the appellant's conduct was deceptive or misleading.
This is not a case where the facts are undisputed and it is possible to ask an appellate court to draw inferences from those facts different from those drawn by the trial judge: Warren v Coombes (1974) 142 CLR 531. What the appellant seeks is that we should reach a finding different from that arrived at by the trial judge where the facts are disputed. We can see no sound reason for making such a different finding.
It was next argued on behalf of the appellant that even if the appellant's conduct was misleading or deceptive it was not conduct in trade or commerce. It was argued that the sale by a corporation of its only capital asset, in a case where the corporation is not engaged in the business of buying or selling such capital assets, does not constitute conduct in trade or commerce for the purposes of Part V, Division 1, of the Trade Practices Act.
This submission needs to be considered in the context of the facts surrounding the sale of the clinic. The business of the appellant was conducting the clinic. The contract provided not only for the sale of the goodwill of the business, but also of stock to the value of about $8,000. When the appellant decided to sell the business it retained the services of an agent to find a purchaser. The business was sold as a going concern and, in order to protect the goodwill, a covenant was given by Mrs Prussak that she would not, directly or indirectly, carry on the business of a cosmetic clinic within a radius of 5 kms. from the Strand Arcade for a period of three years from the date of completion of the contract.
The sale of the clinic should not be viewed in isolation from the totality of the appellant's commercial activities. The sale was part of those activities. The proceeds of sale were available to be used by the appellant in other commercial activities, if it so chose. The agreement for sale entailed continuing obligations on Mrs Prussak not to engage in competitive commercial conduct. In retaining an agent to find a buyer for the business the appellant adopted a procedure commonly used in trade or commerce for finding a buyer for a business which is available for purchase. The mere fact that it was the sale of a capital asset did not deprive it of its character as a transaction in trade or commerce.
In our opinion the activities of the appellant in and about conducting and selling the clinic fall well within the confines of "trade" or "commerce". As Deane J. said in Re Ku-ring-gai Co-operative Building Society (No. 12) Limited (1978) 36 FLR 134 at p 167, the terms "trade" and "commerce" are not terms of art and are of the widest import. In the same case Bowen C.J. said (at p. 139):

"The terms 'trade' and 'commerce' are ordinary terms which describe all the mutual communings, the negotiations verbal and by correspondence, the bargain, the transport and the delivery which comprise commercial arrangements (W. & A. McArthur Ltd. v. State of Queensland ((1920) 28 CLR 530, at p 547)). The word 'trade' is used with its accepted English meaning: traffic by way of sale of

(sic) exchange or commercial dealing (Commissioners of Taxation v. Kirk ((1900) AC 588, at p 592)) per Lord Davey; W. & A. McArthur Ltd. v. State of Queensland ((1920) 28 CLR 530)). The commercial character of trade was mentioned more recently by Lord Reid in Ransom v Higgs ((1974) 1 W.L.R. 1594). His Lordship there said: 'As an ordinary word in the English language "trade" has or has had a variety of meanings or shades of meaning. Leaving aside obsolete or rare usage it is sometimes used to denote any mercantile operation but is commonly used to denote operations of a commercial character by which the trader provides to customers for reward some kind of goods or services ((1974) 1 W.L.R. at p.1600)'. Moreover, the word covers intangibles, such as banking transactions, as well as the movement of goods and persons, for historically its use has been founded upon the elements of use, regularity and course of conduct (Bank of New South Wales v. Commonwealth

((1948) 76 CLR 1, at p 381)."

The appellant's general proposition that the sale by a corporation of its only capital asset, where the corporation is not engaged in the business of buying or selling such capital assets, does not constitute conduct in trade or commerce was based upon the decision in O'Brien v Smolonogov (1983) 53 A.L.R. 107. In that case it was held that the sale of a parcel of vacant land did not amount to conduct in trade or commerce. The case is distinguishable from the present. The land was not used for any business activity. The Court derived assistance in reaching its decision from a series of United States decisions under consumer protection legislation. It observed that in the American cases the view had been consistently taken that a private sale of property by an individual is not conduct in trade or commerce except if done in the course of a business activity or otherwise arising in a "business context". The following passage from the Court's judgment (at pp. 112-113) conveniently summarises the American view:

"On the other hand , in Begelfer v Najarian 409 NE(2d) 167 (1980), it was held that a statute providing a remedy for persons suffering loss as a result of use by another person, who engages in any trade or commerce of an unfair or deceptive act or practice, does not require that a commercial trans action must have taken place only in the ordinary course of a person's business or occupation before its participants may be subject to liability. After referring to the 'business context' test employed in Lantner, supra (i.e. Lantner v Carson 373 NE(2d) 973 (1978), Abrams J said (at 176): 'The question of whether a private individual's participation in an isolated transaction takes place in a 'business context' must be determined from the circumstances of each case. To establish a private person's liability ... we assess the nature of the transaction, the character of the parties involved, and the activities engaged in by the parties ... Other relevant factors are whether similar transactions have been undertaken in the past, whether the transaction is motivated by business or personal reasons (as in the sale of a home), and whether the participant played an active part in the transaction. ...'

"Finally in Lynn v Nashawaty 423 NE (2d) 1052

(1981), the Appeals Court of Massachusetts refused to set aside a finding of fact that the sale of a stationery store, and, in particular, representations as to the worth of stock in trade, took place in a business context so as to bring into play a statutory proscription against unfair or deceptive acts or practices in trade or commerce. Having analysed the reasoning in Latner and Begelfer, supra, Armstrong J said (at 1054): 'The sale of a business or business assets by a businessman is not the same as a sale of a home by an individual homeowner ... , and the defendants in the present case were fully involved in every aspect of the transaction ..., including the false representation which is the core of the alleged ... violation. ... In view of the position taken in the Begelfer case that an isolated transaction, one that does not take place in the ordinary course of business, may constitute a violation of s.11, so long as it takes place in a business context, it is difficult to avoid the conclusion reached by the finder of fact that the transaction at bar violated that section. We cannot say that the judge was required as (a) matter of law to reach the conclusion that the sale of the stationery store did not take place 'in a business context'. The question in a close case is doubtless largely one of fact, and the judge's finding here was not clearly erroneous'."

We do not think the decision in O'Brien's Case assists the appellant. The Court was careful to point out that the land which was sold in that case was not used for any business activity. Nothing was said in O'Brien's Case that lends support to the proposition that the sale of a capital item used for business purposes will not constitute conduct in trade or commerce unless it forms part of a business of buying or selling such capital assets.
The appellant submitted that the expression "in trade or commerce" necessarily connoted a course of conduct as opposed to isolated and unusual or extraordinary conduct. The Ku-ring-gai Case (supra) at p.625 and Bank of New South Wales v. The Commonwealth (1948) 76 CLR 1 at pp 284 and 381 were relied upon for this proposition. It was said in those cases that historically the use of the word "trade" was founded upon the elements of use, regularity and course of conduct. But that is not to say that a corporation must engage in multiple transactions of a similar kind for it to be engaged in trade or commerce. It was submitted that, whilst the appellant engaged in trade or commerce when conducting the beauty clinic, the sale of the clinic was not something done in trade or commerce because the sale terminated the appellant's ability to engage in trade or commerce. In our opinion, the making of the arrangements necessary to dispose of the clinic were part and parcel of the totality of the appellant's activities in trade or commerce.
Moreover, as we have already pointed out, it by no means followed from the appellant's sale of the beauty clinic in the Strand Arcade that it would not engage in other commercial activities elsewhere. It is not uncommon for a corporation to acquire and dispose of businesses during the course of its corporate life and we see no sound reason for excluding an obviously commercial transaction from a corporation's conduct in trade or commerce merely because the transaction is the sale of the corporation's principal, or sole, business undertaking.
It was also submitted on behalf of the appellant that, even if its conduct was "in trade or commerce" according to the ordinary meaning of those words, it was not conduct to which s.52 applied since the section is directed only to conduct which is deceptive of members of the public in their capacity as consumers of goods and services. It was argued that the private nature of the transaction in question put it beyond the ambit of s.52.
We reject this argument as we are unable to discern in the context any sufficient reason to warrant giving the expression "in trade or commerce" a more limited or restricted meaning than that expression ordinarily bears.
The appellant also submitted that s.52 is to be construed in the light of the heading to Part V of the Act leading to the conclusion that the section is directed only to transactions in a consumer protection context. The appellant relied on the decision in Westham Dredging Co. Pty Limited v. Woodside Petroleum Development Pty. Limited (1983) 36 ALR 287 but did not make detailed submissions on the point. The learned trial judge gave cogent reasons for rejecting the argument and we respectfully agree with them. It is plain from the decision of the High Court in Hornsby Building Information Centre Pty. Limited v. Sydney Building Information Centre Limited (1978) 140 CLR 286 that the operation of the unambiguous words of s.52 should not be given a confined meaning because of the heading to Part V: see especially per Stephen J. at p.225. It is true that conduct falling within s.52 frequently occurs when statements are made by a corporation to members of the public, but, as Toohey J. pointed out in Menhaden v Citibank N.A. (1984) 55 A.L.R. 709 at 713, it does not follow that s.52 is confined to statements directed to the public or some identifiable section of it.
In our opinion the appeal should be dismissed with costs.

[1985] FCA 160

24 APRIL 1985