Brookteck Pty Ltd v Lumocol Australia Pty Ltd - [1996] FCA 919

TRADE PRACTICES - whether representations as to cash takings and profit margins were made in the course of the sale of a book business - reliance.

CONTRACTS - cannot rely on an exclusion clause where there has been a breach of the Trade Practices Act 1974 (Cth).

DAMAGES - how assessed - goodwill - valuation - difference between value of business and price paid.

Trade Practices Act 1974 (Cth) s 82
Corporations Law s 459E
Fair Trading Act 1987 (NSW) s 72

Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367, cited.
Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375, cited.

BROOKTECK PTY LIMITED (First Applicant) KRISTIAN BANT ROMULD, JILL CAROLYN ROMULD (Second Applicant) and LUMOCOL AUSTRALIA PTY LIMITED (First Respondent), ALBERT (BARRY) ALLERTZ (Second Respondent) and LUMOCOL AUSTRALIA PTY LIMITED (Cross Claimant) and BROOKTECK PTY LIMITED (First Cross-Respondent) and KRISTIAN BANT ROMULD (Second Cross-Respondent) and JILL CAROLYN ROMULD (Third Cross-Respondent)

No NG 501 of 1994

Tamberlin J
Sydney
23 October 1996

IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 501 of 1994
GENERAL DIVISION )

BETWEEN: BROOKTECK PTY LIMITED
First Applicant

KRISTIAN BANT ROMULD and
JILL CAROLYN ROMULD
Second Applicants

AND: LUMOCOL AUSTRALIA PTY LIMITED
First Respondent

AND: ALBERT (BARRY) ALLERTZ
Second Respondent

LUMOCOL AUSTRALIA PTY LIMITED
Cross Claimant

AND: BROOKTECK PTY LIMITED
First Cross-Respondent

AND: KRISTIAN BANT ROMULD
Second Cross-Respondent

JILL CAROLYN ROMULD
Third Cross-Respondent

CORAM:       TAMBERLIN J
PLACE:       SYDNEY
DATED:       23 OCTOBER 1996

REASONS FOR JUDGMENT

TAMBERLIN J:

In this application the applicants seek damages under the Trade Practices Act 1974 (Cth) ("the Act"). They also seek to set aside a personal loan agreement. Further, the applicants seek to set aside a Statutory Demand served on the first applicant pursuant to s459E of the Corporations Law ("the Law").

Against the second respondent damages are sought under s72 of the Fair Trading Act 1987 (NSW). Alternatively, an order is sought under s7 of the Contracts Review Act 1980 (NSW) to set aside the personal loan agreement.

There is a cross-claim by the first respondent against the first applicant under a sale agreement of 1 July 1992 and as against all applicants upon a loan agreement of the same date.

In final submissions the relief claimed by the applicants was for damages, interest and costs.

The Nature of the Claim

Essentially, the claim is that in the course of a series of meetings held between the second applicants ("the Romulds") and the second respondent ("Mr Allertz") which culminated in the sale of a technical book business, Mr Allertz misrepresented that the business had generated a substantial cash amount, in the order of $100,000, over and above the income disclosed in the books of account of the business, and that the gross profit margin of the business was substantially higher than it was in fact.

Background

In May 1992, Mr Romuld was interested in purchasing a business. He…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [1996] FCA 919
Decision Date: 23 OCTOBER 1996

CaseChat Overview and Summary

The applicants in this case sought damages and other relief under the Trade Practices Act 1974 (Cth), Corporations Law, and Fair Trading Act 1987 (NSW). The applicants, Brookteck Pty Ltd, Kristian Bant Romuld, and Jill Carolyn Romuld, alleged that the second respondent, Albert Barry Allertz, made misleading representations regarding the financial performance of Northbridge Book Supplies (NBS) during the sale of the business. The respondents, Lumocol Australia Pty Limited and Albert Barry Allertz, denied the allegations and counterclaimed for the balance of the purchase price under the Sale Agreement. The key issues revolved around whether Mr Allertz made representations about cash takings and profit margins that were not reflected in the financial statements, whether the applicants relied on these representations in purchasing the business, and how to assess the damages.

The court found that Mr Allertz did make misleading representations about both the cash takings and the gross profit margins of NBS. The evidence indicated that Mr Allertz represented there were additional cash takings of approximately $100,000 that were not disclosed in the financial records. The court found this representation distinct from any stock adjustment discussions. Regarding the profit margins, the court concluded that the gross profit margin figures were overstated and misleading. The applicants had relied on these representations when purchasing the business, and the representations were of significant importance in their decision-making process.

Regarding the exclusion clause in the Sale Agreement, the court held that it did not negate the applicants' reliance on the misrepresentations. The clause could not absolve the respondents of liability for the misleading conduct, which was in breach of the Trade Practices Act.

In assessing damages, the court determined that the loss to the applicants was the difference between the value of the business as represented and the price paid, which amounted to $304,000. The court also awarded interest on this amount up to the date of judgment. The respondents were entitled to succeed on their cross-claim, but the court made adjustments for unsaleable stock, reducing the net amount of the cross-claim. The final order was for the respondents to pay the balance of the damages to the applicants, offset by the adjusted amount of the cross-claim, plus interest.

Orders