Chow v Yang
[2009] SADC 33
•11 June 2009
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
CHOW & ORS v YANG & ORS
[2009] SADC 33
Judgment of His Honour Judge Barrett
11 June 2009
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - REPUDIATION AND NON-PERFORMANCE
Oral contract for sale and purchase of Chinese Grocery. Plaintiff paid consideration and took possession. Defendant did not transfer shares in trust to complete transaction. Plaintiff sues for restitution of purchase price. Defendant acknowledges an obligation to pay restitution but, having changed his position and suffered loss, he seeks to offset his loss. Plaintiff denies the defendant has suffered loss. Held: defendant has suffered the loss he claims and can offset it against plaintiff's entitlement to restitution.
Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101; Spangaro v Corporate Investment Australia Funds Management Ltd (2003) 47 ACSR 285; Ethnic Earth Pty Ltd v Quoin Technology Pty Ltd (receivers & managers appointed) (in liq) and Others (No 3) (2006) 94 SASR 104; Rowland v Divall [1923] 2 KB 500; Carter and Harland; Contract Law in Australia (4th ed 2002) [2306], considered.
CHOW & ORS v YANG & ORS
[2009] SADC 33Introduction
This case concerns an agreement for the sale and purchase of a Chinese grocery store. The agreement was not completed. There are 4 plaintiffs and 3 defendants, but it will be convenient to refer to the parties in the singular because the first plaintiff and the first defendant were the principals in all relevant dealings. The purchase price was paid by the plaintiff. He operated the store, through others, for about 10 months in 2004. The business and the lease were not transferred to him by the defendant. His agent left the store and the plaintiff wants his money back. The defendant agrees that the purchase price paid by the plaintiff should be taken into account in the financial wash-up, but he says that the wash-up substantially reduces the sum recoverable by the plaintiff.
Factual background
The defendant migrated from Taiwan in 1998. In that year he and two other people bought the business and the real estate of the Hong Kong Grocery Store which is situated at the Grote Street entrance to the Chinatown precinct in central Adelaide. In 2001 the defendant bought out the business interests of the other two individuals but the three of them continued to hold the real estate. They signed a lease agreement with the operators of the business. The lessee was a company called Austaikong International Trading Pty Ltd which was the trustee of a unit trust. The unit trust operated the business. The defendant was the principal. The lease was for a term of 5 years from 1 May 1998 to 30 April 2003 with an option for an extension for a further 5 years to April 2008
In 2003 the defendant wanted to retire from the business for health reasons but he wanted to retain his interest in the real estate. He had known the plaintiff through business for some years. He had purchased supplies from the plaintiff’s business in Sydney. The two discussed the sale and the purchase of the business. In my view the evidence is clear that they reached an agreement. It was entirely oral. The defendant was going to sell the business to the plaintiff, one of his sisters in Hong Kong and his wife’s three brothers who lived in Taiwan. Each of them was to purchase an equal fifth share. The agreement crystallised on 15 February 2004. The parties agreed the purchase price for the whole business. The total consideration was to be $526,000. $300,000 was to be for goodwill. $226,000 was for the stock determined by a stock take conducted on 14 February. Sometime after 15 February both parties agreed that it would be convenient to effect settlement on 30 June 2004 but the purchase price would remain the same. As events turned out settlement did not take place at all. There is disagreement about why that was so.
The parties varied the proportion of the business to be transferred. It was agreed that the defendant was to sell and the plaintiff was to purchase only 90 per cent of the business. The defendant would retain 10 per cent. There is some disagreement about the reasons for that variation.
Both parties acted in accordance with their agreement of the 15 February 2004. The plaintiff moved in and began to run the business on that day. He appointed one of the prospective purchasers from Taiwan to manage the business. He himself remained in Sydney. He opened a cheque account at the Westpac bank for the business. He took over no loans from the defendant. Only he and his manager were signatories at first. The defendant took responsibility for the payment of all stock purchased before 15 February. Those matters are not in dispute. The defendant stayed in the shop for a few weeks to help in the handover. He then went overseas from early March until early April.
The plaintiff paid the purchase price by instalments. Most instalments had been made before 15 February. Payment was completed by a final instalment on 11 June. It was a payment of $120,000 bringing the monies paid to a little over the agreed purchase price. A credit of stock of some $20,000 had been agreed between the parties. The figure in excess of the purchase price was for other matters not the subject of this trial. For the purposes of this trial, the full 90 per cent of the original purchase price was completed on 11 June 2004. Effectively the plaintiff paid what was eventually agreed upon. There is no dispute about that.
Thereafter the parties fell out. The business was never transferred to the plaintiff. The plaintiff never took over the lease. There was disagreement about why the parties fell out. Each blames the other. The disagreements are about the following topics:
1.The plaintiff decided he wanted to buy the real estate as well as the business. The defendant says he initially refused to sell the real estate but later acquiesced.
2.The defendant’s son Wesley occupied a section within the grocery shop selling bubble milk tea. The parties disagreed about whether, or on what terms, the son might be allowed to continue operating that business.
3.The parties disagree about the reasons why the business was not transferred to the plaintiff and why he did not take over the lease. As I have indicated each blames the other.
4.Disharmonies arose between some of the personalities. When the plaintiff took over the business in February 2004, he did not run it personally. He installed as manager, one of his brothers-in-law, Ta Ming Chen (Austin). Austin was to have been a purchaser of the business. The plaintiff’s original plan was for the business to be purchased equally by him, his sister who lived in Hong Kong, and his wife’s three brothers who lived in Taiwan. The plaintiff says that tensions arose between Austin and the defendant. The defendant says tensions arose between Austin and the plaintiff. At all events Austin left the shop at the beginning of May 2004. He and his wife returned to Taiwan. In his place the plaintiff employed Eng Joo Goh (Mr Joe) to run the business. He stayed there from May to November 2004. In November he left on the orders of the plaintiff. In early November he handed over to the plaintiff some unbanked cash from the business. He took further unbanked cash from the business to deliver to the plaintiff when he left the shop on 22 November 2004.
The factual dispute
The ultimate factual dispute is how much of the monies paid by the plaintiff for the purchase of the business is the defendant entitled to retain. There is disagreement between the parties as to the amount of stock there was in the shop when the plaintiff left it. Essentially the plaintiff says that the level of stock was unchanged from what it had been in February 2004 when he took over the business. He says the stock was kept up to that level during his occupancy of the shop. The defendant says that the stock take he conducted when the plaintiff left showed that the stock had been drastically depleted. Even after recovering stock from a residential garage occupied by Mr Joe before he left, there was only $51,000 worth of stock compared to the $226,000 in February. In addition the defendant alleges that the plaintiff had instructed Mr Joe in the last few months of his occupancy to put off paying all but COD suppliers. Accordingly the defendant was obliged to, and gradually did, pay some $188,000 to these suppliers. There are thus two components to the defendant’s claim for the reduction of the purchase price of $473,400 paid by the plaintiff (that is 90 per cent of the $526,000 originally agreed on). There is approximately $175,000 for depleted stock and approximately $188,000 for unpaid suppliers.
It is agreed that the plaintiff withdrew $120,000 from the Westpac cheque account in November. It is also common ground that the plaintiff received cash from Mr Joe. The amount of that cash is a little unclear. He received one amount accumulated before 11 November. That may have been $25,000 or it may have been a lesser sum. He then received a second amount when Mr Joe left the shop on 22 November. It appears that amount was approximately $10,000 (T139-140). The defendant does not dispute that the plaintiff was entitled to take these monies. The sums thus removed are not relevant to the calculations of monies due to either party, but the evidence relating to those sums is relevant to the credit of Mr Joe and to the plaintiff. The topic will also be relevant to the defendant’s contention that there was not a total failure of consideration on the repudiation of the contract. The business was not transferred to the plaintiff but he had the use of the business from February to November 2004 and he derived income from it. At the very least he received the $120,000 he withdrew from the Westpac bank plus the cash he received from Mr Joe.
The legal dispute
In his Second Further Amended Statement of Claim the plaintiff alleges that an express oral agreement between the parties was reached in January 2004 (paragraph 1). He alleges an express oral repudiation on 10 November 2004 by the defendant. The repudiation was expressly accepted orally by the plaintiff (paragraphs 9 and 10). The plaintiff also alleges deceit on the part of the defendant. He alleges that the defendant falsely said that he had a lease in respect of the premises which in November or December 2003 had an unexpired term of approximately 4 years (paragraphs 14 to 18). The plaintiff seeks judgment in the sum of $318,941.81 plus interest and costs. He says that sum is arrived at by deducting $162,000 (the money recovered by the plaintiff) from the $488,145.38 that he paid (paragraphs 6, 12 and paragraph 1 of the orders sought).
The defendant admits the agreement. The defendant denies repudiating the contract and says that it was the plaintiff who repudiated it by words and actions on 10 November and 21 November (paragraphs 12 and 14 of the Second Further Amended Defence). The defendant denies deceit. He says there is a written lease in respect of the premises (paragraph 16). The defendant seeks to have the plaintiff’s claim dismissed with costs. The trial proceeded on these pleadings until there was an application to amend on the day that oral submissions concluded.
Issues during trial
1.There being an express oral contract entered into by the parties, how did it become ineffective? Was it the defendant or the plaintiff who repudiated the contract or rendered it ineffective?
2.Is the plaintiff entitled to restitution by reason of repudiation of the contract by the defendant?
3.Is the plaintiff entitled to restitution even if he caused the contract to become ineffective?
4.The plaintiff having paid the consideration agreed (after variation), is he entitled to the monies paid minus any monies he recovered and/or any detriment suffered by the defendant? What, if any, monies did the plaintiff recover and what, if any, relevant detriment was suffered by the defendant?
5.Is the plaintiff entitled to restitution by reason of deceit by the defendant?
Issues raised by the plaintiff after the close of evidence
For reasons that are not entirely easy to follow, the plaintiff sought during addresses by counsel to file a Third Further Amended Statement of Claim. In his application for special directions dated 11 June 2008, the plaintiff sought the following orders:
1.The Defendants not be permitted to assert that Plaintiffs (sic) are not entitled to recover the purchase price that they paid less so much detriment that the Defendants will have shown to have suffered by reason of the matters pleaded in paragraph 18 of the Second Further Amended of (sic) Defence.
2.In the alternative, the Plaintiffs be granted leave to amend the Second Further Amended Statement of Claim to the form contained in the document marked “A” entitled “Third Further Amended Statement of Claim” annexed to the affidavit of Romeo El Daghl affirmed on 11 June 2008.
There is I think a simple reason for refusing to make an order in the terms sought in paragraph 1 of the application. The defendant has not asserted that the plaintiff is not entitled to recover his purchase price from the defendant. What the defendant has asserted all along is that there must be deducted from that sum the detriments he has suffered. The dispute is about the extent of the detriments.
The reason for refusing to make an order in the terms of paragraph 2 is not much more complicated. The plaintiff seeks to amend his Second Further Amended Statement of Claim by filing a Third. The amendment alleges an alternative claim that there was no agreement between the parties (paragraph 20A). He seeks the same relief in the proposed paragraph 20C as he seeks in the existing paragraphs 25 and 27. In paragraphs 21A to 21G he recites assertions by Mr Morcombe QC from which it is asserted the defendant has resiled from his earlier position (see paragraph 1). In my view the defendant has not resiled from the position he has adopted from the beginning. I take the defendant to say as much in his written Further Outline of Submissions dated 19 August 2008.
There is an additional reason for refusing the application to amend. The belated claim that there was no agreement reached in February 2004 (beyond an agreement to enter an agreement) is unsustainable on the evidence. There very plainly was an agreement. Both parties gave evidence that there was an agreement. They both acted according to its terms. In any event the plaintiff is not disentitled to recover his purchase price payment by reason of there being an agreement for sale and purchase. Subject to set offs claimed by the defendant, the plaintiff’s payments are recoverable on the bases of a termination of the agreement or deceit, both of which appear in the existing pleadings.
I dismiss the plaintiff’s application for directions.
Was there an oral agreement?
I find there was an oral agreement between the plaintiff and the defendant for the sale and the purchase of the grocery business. While the exact date of its conclusion is unclear, it is clear that the agreement crystallised on 15 February 2004. That is the day on which the plaintiff moved into possession of the shop. The defendant remained in the shop for a few weeks helping with the handover. He went overseas in early March.
By 15 February, the plaintiff had already paid approximately $280,000 of the purchase price of $526,000. The payments were made as follows:
1.15 January 2004, $30,000
2.3 February 2004, $30,557.67 (800,000 Taiwanese)
34 February 2004, $90,000
4.10 February 2004, $30,557.67 (800,000 Taiwanese)
5.13 February 2004, $30,557.67 (800,000 Taiwanese)
6.13 February 2004, $70,000
A stocktake had been done on 14 February 2004 and the agreed value of the stock was $226,000.
The consideration was $526,000, $300,000 being for good will and $226,000 being for the stock. On 15 February I find that the agreement was to transfer the whole of the defendant’s interest to the plaintiff and people to be nominated by him. At that stage one of the people nominated was his brother-in-law, Austin. The transfer was going to be effected by the transfer of the defendant’s shares in the company Austaikong International Trading Pty Ltd to the plaintiff and Austin Chen and/or their nominees. That company was the trustee of Austaikong Unit Trust which conducted the business known as Hong Kong Asian Grocery.
The company was the tenant of the owners comprising the defendant and two other individuals. The company held the lease over the premises. The lease was for 5 years expiring on 30 April 2003, with a right of renewal for a further 5 years to April 2008.
I digress for a moment to say something of the claim in deceit. That claim concerns the lease. The plaintiff alleges that the defendant falsely told him in late 2003 or early 2004 that the company had a lease with 4 years still to run. In fact the lease had expired on 30 April 2003 and no one had done anything about exercising the option to extend for 5 years. The extension would have run from 1 May 2003 to 30 April 2008, just over 4 years from 15 February 2004. The defendant asserts that the claim in deceit is (to use his counsel’s words) a “red herring” because there had never been any detailed discussions between the parties about the lease and there had never been any suggestion that the landlords would not grant the 5 year extension contemplated by the lease agreement. I will return to that topic later.
In conformity with the terms of the oral agreement, the plaintiff had paid a large part of the purchase price by 15 February and he had taken possession of the business. Thereafter he received for his own benefit all income derived from the business. Some evidence of the monies received by him is the $120,000 he withdrew from the Westpac cheque account in November 2004 and the cash which he received directly from Mr Joe on about 11 November and further cash that Mr Joe gave to him after he left the shop on 22 November. The defendant makes no claim on those monies.
The plaintiff made a further payment of $60,000 towards the purchase price on 28 March taking the amount paid to $340,000. In May it was agreed that the defendant would retain 10 per cent of the business, thus reducing the purchase price to $473,000. The parties disagree about why that happened but they agree that it did happen. The remaining purchase price was paid first by a payment of $120,000 on 11 June and second by a credit allowed by the plaintiff and accepted by the defendant. It is agreed that the varied purchase price was paid in full by 11 June 2004.
The agreement becomes ineffective
There then arises the question of why the contract became ineffective. The shares were never transferred to the plaintiff. The plaintiff never became the lessee of the premises. Legally it probably does not matter which party is responsible for the contract becoming ineffective. The essential point is that there has been a failure of consideration. It need not be a total failure of consideration. As the defendant concedes (paragraph 9.2 of his outline of argument) “the plaintiff may obtain restitution if they receive a benefit or performance other than the one bargained for” (see Carter and Harland, Contract Law in Australia (4th ed 2002) par [2306] citing Rowland v Divall [1923] 2 KB 500.
Further, the defendant concedes that it is irrelevant whether it was the plaintiff or the defendant who was in breach (paragraph 9.3 ibid). The defendant goes on to argue that he may set off any detriment he suffers (paragraph 10-12).
Notwithstanding that it may not be necessary as a matter of law to make a finding on the question of who terminated the contract, the facts related to that topic are so tied up with the facts related to the matters in dispute that findings of fact will have to be made in relation to this topic. Findings of fact have to be made in relation to the alleged detriment. Did the plaintiff significantly deplete the stock so that its worth went from $226,000 in February to $51,000 in November? Was there a stocktake at all in November? Did the plaintiff leave unpaid suppliers amounting to about $188,000? Did the defendant repay them? The plaintiff denies each assertion posed by these questions. These questions are only resolved by findings of credit in relation to the plaintiff, Austin and Mr Joe on the one hand and the defendant, his wife and his son on the other. The evidence of the plaintiff and the defendant about the circumstances of the termination of the agreement are inextricably tied up with these topics.
Discussion of evidence
The parties are largely agreed about events up to 15 February 2004. The plaintiff was going to buy the business from the defendant for $526,000 including good will and stock. The plaintiff was buying the business jointly with a sister who lived in Hong Kong and his wife’s three brothers who lived in Taiwan. One of those relatives was Ta Ming Chen (Austin) who was already an Australian citizen and who moved to Adelaide to manage the shop. Apparently one of the reasons why the plaintiff purchased the business was because it had a good name with the Immigration Department and Austin’s two brothers in Taiwan were considering migrating to Australia. Unlike him they did not have Australian citizenship. The parties’ accounts of events after 15 February begin to differ and the differences become more pronounced as their relationship deteriorates. It come to an end on 22 November 2004 when the plaintiff effectively left the business unattended and the defendant resumed possession of it.
For reasons that I will discuss I prefer the evidence of the defendant and his witnesses over that of the plaintiff and his witnesses wherever they differ. I find that the defendant was doing his best to recollect events accurately and he was truthful. I find that the plaintiff on the other hand was evasive, contradictory and unreliable.
There are several discrete topics upon which the parties’ evidence differs markedly and I will discuss why I prefer the evidence of the defendant over that of the plaintiff on those topics. I will then comment on other aspects of credit which lead to the same conclusion. The fundamental differences between the parties centre on two matters. First, each blames the other for the contract not being completed. While legally it may not matter who terminated the contract, that issue is so central to the credit of each of them that it is necessary for me to make factual findings on it.
The second matter is the question of whether the stock in the shop had been seriously depleted by the time the plaintiff left the shop on 22 November or whether the stock had been maintained at the level agreed between the parties on 14 February 2004.
Why was the contract not completed?
I deal first with the question why the contract was not completed. The plaintiff says that the defendant failed to transfer the business to him. While that is true the defendant says that the plaintiff did not provide him with the names of the purchasers so as to enable his accountant to effect the transfer of the shares in the business to the plaintiff. The plaintiff effectively refused to settle. In November the defendant said the plaintiff told him for the first time that he did not want to complete the purchase himself but wanted to substitute another buyer for himself and his family but that buyer would not be interested unless the real estate of the business could be transferred as well. The plaintiff agrees that he did discuss purchasing the real estate but denies that that was the issue that lead to the breakdown in relations. He says it was the simple failure of the defendant to effect the transfer.
Chronologically it appears that the first differences between the parties appeared during the period Austin was managing the business. I am satisfied that throughout 2003/2004 the defendant wanted to leave the business. Health problems made him decide to sell the business in the first place. Although he returned to take over the business on 22 November 2004 and to this day remains in the business I find that he was trying to extricate himself from the business during 2004. Each of the parties says that the other fell out with Austin. The plaintiff says that Austin had fallen out with the defendant. He speaks of that in general terms. The defendant says that the plaintiff fell out with Austin. He gives specific evidence that at a meeting on 15 April 2004 in Adelaide, the plaintiff told Austin to his face in the presence of the defendant that he was not satisfied with his managing of the business. Austin said he wanted to get out of the business both as a manager and as a prospective purchaser. At that meeting or very shortly afterwards, the plaintiff agreed to buy his share. Very shortly after that meeting Austin left the business and returned to Taiwan. He gave evidence himself and said that the problem was that he saw himself as being sandwiched between the plaintiff and the defendant who were in disagreement with each other. He said that, in addition, his wife was not comfortable living in Australia and wanted to return to Taiwan. I find the defendant’s account of this incident more reliable. That is partly because the defendant’s account is more specific and plausible. Standing alone that consideration would not lead me to prefer the evidence of the defendant but given the many other unfavourable impressions I formed of the plaintiff I clearly prefer the defendant’s account of this incident.
Whatever disagreements the plaintiff might have had with the defendant he realised that he depended upon the goodwill of the defendant. I find that he persuaded the defendant to resume the management of the business after Austin left. He paid him a salary to do so. I accept the evidence of the defendant that he was not keen to do that but he saw the necessity of keeping the business going until the plaintiff could find someone else to take over the management (T319).
The parties differ about why it was that the agreement between them changed so that the plaintiff would no longer buy 100 per cent of the business but only 90 per cent. The defendant would retain 10 per cent. The plaintiff says that change was made because the defendant was so interested in the project that he wanted to retain a 10 per cent interest (T25). Austin says the same (T59). The defendant says that he was persuaded by the plaintiff to retain 10 per cent because the plaintiff was having difficulties with his fellow purchasers (T319-320). I prefer the defendant’s account. I accept that all along he was keen to divest himself of the business though not of the real estate. I do not think he became so interested in the project that he sought to retain a 10 per cent interest. Certainly the plaintiff was having difficulty with at least one of his fellow purchasers. Austin had pulled out.
The defendant made very plain after he returned from his second trip overseas in 2004 that he wanted nothing more to do with the business. He first went overseas between 11 March and 13 April. The second trip was between 30 September and 19 October. All witnesses agree that when he came back from the second trip the defendant made it clear that he wanted nothing further to do with the running of the business. Mr Joe says that (T239).
A further subject of disagreement between the parties was centred on the question of the lease. As I have already mentioned, the business leased the premises from three people including the defendant. The first term of the lease was from 1998 to 2003. There was a right of renewal for a further 5 years. No one had attended to that. There is no evidence at all of the owners ever being unwilling to extend the lease either with the defendant as lessee or the plaintiff as lessee. Both in his pleadings and his evidence the plaintiff asserts that the defendant committed deceit by telling him during their discussions that the lease had a further 4 years to run. I am quite satisfied that the defendant did say something like that. However I am equally sure that he believed it to be true. From his evidence I am quite sure that he did not really understand that the parties to the lease had to take steps to renew it when it expired in 2003. He thought that it just continued until 2008. It is true that he did nothing to transfer the lease into the plaintiff’s name but I am equally sure that no one at the time saw that as an important matter. It was not the subject of any detailed discussion, much less any disagreement. The plaintiff has chosen, both in his pleadings and his evidence, to make the lease an issue when it never was an issue between the parties.
The occupation by the defendant’s son, Wesley, of a section in the grocery where he ran a bubble milk tea store gave rise to disagreement between the parties. The defendant wanted his son to be able to continue operating his business within the larger shop. The parties obviously discussed that. The son was running the business in 2003 and he was paying rent of approximately $400 per month for that privilege. The plaintiff agrees that in 2003 he said to the defendant that he would “look after” the son, but he says because the settlement was delayed by the defendant he needed to take over the son’s area (T136). He says that at the meeting he had with the defendant on 11 November, he refused to give the defendant’s son a lease (T42). He says the defendant insisted on his son being granted a lease or he would not settle (T40). The defendant says that he did not make the son’s lease a condition of his settling but that it certainly was a source of disagreement between the two of them. If it became a source of disagreement, in my view it was one manufactured by the plaintiff. For reasons that are not clear I find that he did not want to proceed with the purchase of the business and he chose several topics to manufacture disagreement and to cast blame on the defendant for failing to settle.
Another subject of obvious disagreement between the parties was the question of the transfer of the real estate of the business. No such transfer was proposed when the parties agreed to the transfer of the business in February of 2004. The real estate was not mentioned. Neither party suggests it was. Plainly however it was a major point of disagreement by the time of the parties’ meeting on 11 November. The plaintiff agrees that he asked the defendant to sell to him his third share in the real estate. He gave us his reason for making that new request that the settlement had been delayed by the defendant. He denied the further aspect of that topic put by the defendant namely that the plaintiff told the defendant he had found a substitute buyer for the business but the buyer would not be interested unless he could also buy the real estate. The defendant agrees that initially he refused to sell his share in the real estate. He says that he explained to the plaintiff that he and his wife saw that interest in the real estate as being security for their future. It was the subject of bitter discussion on 11 November. That much is agreed by both parties. I accept the plaintiff’s evidence that shortly after that the defendant’s wife spoke to the plaintiff on the telephone and reiterated her husband’s refusal to sell the real estate. What is abundantly clear however is that thereafter the defendant and his wife changed their minds. The defendant wrote letters to the plaintiff on 17 and 20 November. They were very conciliatory letters to the plaintiff apologising to him for the position he and his wife had taken. He indicated their willingness to sell the real estate (see MFI-D13 and Exhibit D14). The plaintiff’s reaction to the defendant’s approach was dismissive. “I need not this letter; I need the settlement documents” (T159). In my view that suggests he was not really interested in the real estate. It suggests he was manufacturing a disagreement so as to get out of his bargain. I am not sure why he was doing that but I am satisfied that was what he was doing. The plaintiff had received two letters offering to sell the real estate that he had been looking for but he did not reply to either. He walked out of the business on 22 November, days after receiving the two letters.
The first of the two major factual disputes in the case concerns the reason why settlement did not take place. A major dispute between the parties centres on the events of 15 July 2004. The defendant says that the parties had agreed to effect the transfer of the business after the end of the financial year. The plaintiff had made the last payment of the purchase price on 11 June. On 15 July the defendant went to his accountant, Mr Kenneth Chan. He says he asked Mr Chan to attend to the documentation of the transfer. I think it is possible that neither the plaintiff nor the defendant really understood what documentation was required. In the event, all that had to be done was to transfer the shares in the Trust from the defendant to the plaintiff and his co-purchasers. By then it had been agreed that they would be purchasing only 90% of the business with the defendant retaining 10%. The defendant says that Mr Chan told him that all he needed to complete the transfer was the personal details of the purchasers. To that end both the defendant and Mr Chan gave evidence that while at the accountants, the defendant made a phone call to the plaintiff, and put him onto Mr Chan who proceeded to seek the details of the purchasers. The defendant and Mr Chan say that the plaintiff did not provide the details of the purchasers, saying that he needed further time to speak with them. The defendant says he rang the plaintiff again after the accountant’s meeting but the plaintiff reiterated that he needed to speak to his family. The plaintiff denies these conversations. He says it never took place. The phone records certainly suggest there was a phone call between the defendant and the plaintiff on 15 July 2004 (Exhibit D21). The plaintiff agrees that he never gave the defendant the details of the purchasers but he says that he was never asked for them. His evidence on this topic is really very unsatisfactory. He says that the defendant caused the problem. The defendant failed to send him details of the contract so that he could consider it. He insists that he was always asking for the contract so that he could consider its terms. In cross-examination this exchange took place:
QAt the time that you paid the $120,000 on 11 June had you given to Peter or anyone else on his behalf details of the names and addresses of the purchasers.
ANo.
QAfter 11 June 2004 did you give that information to Peter or anyone else on his behalf.
ANo.
QThen how was Peter to arrange the transfer of the business.
AI called him, I need him to fax me all the details of the contract first. I need to have a look all the details if any change, change it and then at the same time I would submit all the names to him.
QWere you reluctant – do you understand ‘reluctant’ –
ANo.
QDid you have some reason why you didn’t want to give him the names and addresses of the purchasers.
AYes and no, meaning if you put the name in there and then all the content is wrong. After I checked the contents of the contract and then you all agree, I give the name and then give him back all the details at the same time, so that he can do the contract perfectly. That’s why I’m still waiting the contract, waiting all the details. I can’t say ‘You prepare the contract and then I sign it’. I must know that what’s inside the shop, what must be present, refrigerator, how many, how many cashier, I must have all the details, and then everything is right, ok. I give the details and then sign it, so one time finish it and I offer all the documents back, it’s rubbish. (T127-28)
And at another point he was extremely evasive about not providing the names of the purchasers. This exchange occurred between the witness and me:
QDid you think that he (the defendant) did not have the names and addresses of the purchasers.
AI think maybe he didn’t have them at that moment.
QDid it occur to you to voluntarily give them to him.
AHe never asked me for them.
QBut did it occur to you to give them to him.
AYes, of course. I mean, if the documents processing I thought he need them.
QWhy didn’t you give them to him.
AYou mean when?
QAt any time. You never gave them to him.
AHe didn’t request them.
QBut why didn’t you give to him.
AIf he requested I give.
QI know, I understand. I know. I understand. But why didn’t you give them to him.
ABecause I didn’t know the document processing. That’s the first time I buy a business. If I have this again I know how to do it. And also Peter asked my solicitor and not my accountant for this case. So that’s why I didn’t know this part. (T261-2)
I accept the evidence of the defendant and Mr Chan that on 15 July the defendant put Mr Chan on the telephone to the plaintiff and that Mr Chan asked for the details of the purchasers. I find that, as Mr Chan says, the plaintiff declined to supply the details saying that he would need to speak to the purchasers. I do not know why he did that but I am satisfied that the plaintiff was asked for the details and he never gave them. It was his non-cooperation that caused the settlement not to take place. He was avoiding settlement as early as 15 July 2004. I do not know whether he was regretting his bargain or whether he wanted to extract more from the deal with the defendant by, for example, obtaining the real estate or whether he was having difficulties with his co-purchasers. These are all matters of speculation about which I make no finding. What I am sure of is that it was the plaintiff who caused the failure to settle. I do not think that he was of a clear mind to get out of the bargain on 15 July. He had only just finished paying the full consideration. What is clear is that as the year progressed he decided to try to get out of the bargain. His explanations are not believable. He says that in July he asked the defendant why settlement had not taken place. He said that the defendant told him he was too busy (T35). I find that the defendant was always keen to complete the agreement after the end of the financial year on 30 June.
I think that the topic of the plaintiff trying to buy the real estate arose later in the year, possibly after the defendant came back from his second overseas trip in October. This exchange took place in cross-examination of the plaintiff:
QI suggest that when Peter came back from Taiwan in October, he said to you that he was only a one third owner of the building and it would be very difficult to sell the building.
AYes.
QHe said that.
AYes.
QWhat do you say led into that conversation.
AI request him, if possible, to sell one third of the building to me, because now the settlement day is already a few months delayed. So, if like that, my investment to use the business, my profit might be a little bit tight, because it only have about four years left when I am talking with Peter at that moment, so I suggest is it possible to buy this building, his share of the building, so that I can have more time to run it up to settlement. (T131-132)
The plaintiff says that in October he asked the defendant to have the documents ready for him to sign on 11 November when he came to Adelaide. He said the defendant tried to ignore his questions (T40). I do not accept that evidence.
The defendant says that when he got back from overseas he told Mr Joe he did not want anymore to do with the business. He also told the plaintiff that. The plaintiff was angry (T236). On 11 November the plaintiff told him that he had found a buyer for the business but the buyer wanted the real estate. The plaintiff complained about the income of the business (T237). The defendant said that the plaintiff wanted $150,000 back of his purchase price (T331). I accept this evidence of the defendant. It is a more rational explanation for the settlement not taking place than an inexplicable refusal on the part of the defendant to effect the transfer. I find that the defendant always wanted to proceed to divest himself of the business. Even though he willingly re-entered the business after the plaintiff left it, and stays there to this day, I am satisfied that in 2003-4 he wanted to sell the business. He remained willing to sell it but the plaintiff would not give him the information that enabled him to do so. For whatever reason the plaintiff either wanted to get out of his agreement with the defendant or, he wanted more advantageous terms.
I find that the evidence of the plaintiff is unreliable and unbelievable on the topic of who caused the agreement to become ineffective. I find that he, not the defendant, caused it to remain uncompleted.
Depletion of stock
The second major factual dispute between the parties concerns the state of the stock in the business in the latter part of 2004. The defendant says the stock was radically reduced from what it had been in February. The plaintiff maintains that it had not been reduced at all. The plaintiff denies that there was a stock-take undertaken by the defendant after he left the shop. In effect, he is saying that, the defendant and his witnesses are lying when they say they conducted a stock-take and that it showed a gross reduction in stock. The defendant is, in effect, saying that the plaintiff ran the business down. In my view the evidence is overwhelming that the plaintiff ran the business down. The plaintiff’s evidence was evasive and at times, simply unbelievable. I digress to say something of the mastery of English of each of the parties. A reading of the transcript of his evidence might suggest that the plaintiff had a difficulty with English and was at a disadvantage in the witness box. That is not at all my impression. He seemed alert to the questions being asked and, when he chose, was precise about his answers. He did not seek an interpreter and in my view, did not need one. The defendant’s command of English was not as good as that of the plaintiff, yet, when spoken to in clear language, he too was able to give evidence without the benefit of an interpreter.
It is clear that towards the end of his occupation of the business the plaintiff made plans to remove and secure for himself the income from the shop. The defendant does not dispute that he was entitled to do so. However, it is the secretive method that he went about it that informs what he was really doing. The plaintiff says in his evidence that at all times he kept the stock up to the level it was at in February 2004. The defendant says that the stock had been serious depleted. The plaintiff had installed Mr Joe in the shop from about May. Mr Joe obeyed the orders of the plaintiff. I found his evidence generally evasive, but concessions that he made are informative about where the truth lies. It is clear that for a time before 11 November, Mr Joe was not banking the takings. He was keeping the cash receipts for the plaintiff. In cross-examination he was asked questions about that topic. The questions concerned the period around late September to mid October. The defendant was overseas from 30 September to 19 October. This exchange took place:
QWhen Peter came back from overseas, I suggest he did not sign any cheques or pay suppliers for the business; is that correct.
AI haven’t checked that because it is none of my business. I just give the stuff to him, I don’t – I have nothing to do with that.
QWhen he came back from overseas didn’t he tell you that it was Raymond’s business and he didn’t want to have anything more to do with it.
AYes, he did.
QAnd at about that time I suggest, Raymond told you not to bank the takings.
OBJECTION
QBy reference to the previous question, I am referring to the time when Peter told you it was Raymond’s business and he wanted nothing more to do with it. I am suggesting that at about that time Raymond told you not to bank the takings. What I am suggesting is, about the same time as Peter said ‘It is Raymond’s business and I don’t want anything more to do with it’, that was about the same time as Raymond told you not to bank the cash takings.
INTERPRETER: Do you mean don’t take the money, the cash from the bank, right?
MR MORCOMBE: Do not take the money to the bank.
AYes.
QAnd did Raymond at the same time tell you to stop paying the suppliers of the business.
AI don’t have the right to decide that.
QI am asking you whether Raymond told you at the same time as the other direction to stop paying suppliers.
AI haven’t heard that; I haven’t heard of that.
QDid Raymond say that to you at any time before 22 November 2004.
ANo.
QDid he tell you to only pay the urgent accounts for the suppliers.
ANo.
QDid you pay any suppliers between the time when Peter left to go overseas on 30 September and the day you left, being 22 November 2004.
ANo.
QWhat about those who were usually paid in cash. Did you pay them during the period 30 September to 22 November.
APayment to the workers.
QThe workers in the shop.
AYes.
HIS HONOUR: Q. That’s not what Mr Morcombe is talking about. He is talking about suppliers.
NOT ANSWERED
QMy question is did you pay any of the suppliers to the shop during the period 30 September to 22 November.
ANot at all.
QI think there were some suppliers who usually were paid in cash. Is that correct.
AYes, but only the little amounts.
QAfter the occasion when Raymond told you to not bank the cash, did you continue to pay little amounts for suppliers in cash.
AI only paid those little amounts which were required to pay on the spot.
QWere there other suppliers for big amounts usually paid in cash that you stopped paying between 30 September and 22 November.
INTERPRETER: Sorry, could you please repeat that.
QWere there suppliers to the company for large amounts who were usually paid in cash, that you stopped paying between 30 September and 22 November.
AYes, I paid but not in cash. Not with the cash.
QWho signed the cheques.
APeter.
QI suggest that after Peter returned from overseas Peter stopped coming into the shop and said he didn’t want anything more to do with it. Is that correct?
AYes, he said that.
QAnd from that time on Peter did not sign any cheques.
AI don’t know, I only give Peter the stuff. I don’t know if he has signed or not.
QIsn’t it the case that he stopped coming into the shop.
ABut still I saw him come occasionally.
QDid any suppliers in the period from 30 September to 22 November complain to you about not being paid.
ASome of them.
QWhat did you do about that.
AI asked them to contact my boss Peter. (T240-242)
Later in this evidence Mr Joe said that the plaintiff had not instructed him to pay some of the suppliers. He said:
ANo, I never heard of that. (T243)
He maintained that the stock was kept up to its earlier level. However, it is plain that suppliers were complaining about not being paid. The defendant says that people were complaining to him and he referred them to the plaintiff. The plaintiff agrees that some suppliers were complaining to him and he referred them to the defendant. He said that the business was not his and to take their complaints to the defendant. The plaintiff admits that sometime before 11 November when he came to Adelaide, he instructed Mr Joe to stop banking cash receipts. He agrees that he took cash from Mr Joe when he visited Adelaide on 11 November. The quantum of cash he took is unclear. At one stage it was $25,000 cash and at another it was a lesser sum. The amount he took on the 11 November when he came to Adelaide is separate and distinct from the further amount that Mr Joe collected between 11 November and 22 November. The evidence is more consistent that that sum was about $10,000. Mr Joe says he gave it to a friend to look after in Adelaide and then eventually saw it into the hands of the plaintiff. The plaintiff agrees that on 11 November he withdrew $120,000 from the Westpac cheque account and sent it to one of his sisters in Hong Kong. That sister is not one of the proposed purchasers. Mr Joe said that he forgot what instructions it was that the plaintiff gave him on 22 November, the day that Mr Joe left the shop, and he initially forgot where he had kept the cash, but he was instructed to take it to the plaintiff (T213-244). The plaintiff agrees that he told Mr Joe on 13 November to do that.
I think there is a telling part of the plaintiff’s evidence which makes it clear that he instructed Mr Joe in October to avoid making payments to suppliers. This exchange took place in his examination-in-chief:
QYou went back to Sydney I think on 13 November approximately.
AYes.
QDid you give any instructions to Joe after you got back to Sydney.
AYes.
QWhat did you tell Joe to do.
AI tell Joe not to bank the money just keep it.
QWhat about to pay any bills that needed to be paid.
ASome payment, if they request cash, pay it. If urgent, pay it.
QThis was what, just after you got back to Sydney, you had this conversation.
ANo.
QSorry.
ABefore, before I go back. That’s on about end of October.
HIS HONOUR: October,
AOctober, because at that moment we have conversation over the telephone, and then, because of the buildings matter, purchasing the building matter, Peter Yang ring to me. He said, ‘I don’t want to do any accounting job. That’s your company, you do it yourself’, but I said ‘It’s still your company. How can I do it?’ So, I asked him ‘At least finish it at this stage and then settlement and I take back myself’, but, since then, he never go to the shop, may be only go one or two times.
QThis is your understanding of Peter going to the shop.
AYes, and then I think that something will be happen, that’s why I ask him I will becoming to Adelaide and then I need to talk with him (T43).
I think that really shows what was happening between the parties. The defendant says that he always wanted to divest himself of the business. He says that he stayed on to help out at the plaintiff’s request. I think it is plain that at about the time of his second trip overseas the defendant made it clear to the plaintiff that he wanted to have nothing more to do with the business. For reasons that are not entirely clear to me, I find that the plaintiff was unwilling to complete the contract. Whether he wanted to avoid the contract entirely or whether he wanted to put pressure on the defendant to sell him the real estate or give him back some of his money, I am not sure. I am satisfied however, that it was he who was unwilling to go ahead with the contract in the terms which had been agreed in February. I further find that at about the time the defendant came back from his second trip on 19 October 2004 the plaintiff instructed his manager, Mr Joe, to withhold takings. It is, in my view, inevitable that that meant that suppliers were not being paid. Only those suppliers who traded in small amounts of cash, were being paid. I am satisfied that that meant that the stock was being run down. I have no reason to disbelieve the truthfulness or the reliability of the evidence of the defendant and his witnesses about the stock-take he undertook on 22 November. The plaintiff was supplied with details of the stock-take and he took no interest in it. He never complained about its accuracy to the defendant and, except for a few minor aspects of the stock-take, there has in the trial, been no real challenge to the detail of it. The plaintiff alleges something more serious. He alleges that the defendant has simply just misrepresented the stock-take. He says that no stock-take took place at all. That is what his counsel put to the defendant (T404) and to the witnesses who say they were present at the stock-take. I find there was an accurate stock-take undertaken by the defendant on 22 to 23 November 2004 and that it showed the substantial reduction of stock that the defendant claims.
There is one further topic which in my view demonstrates the plaintiff’s unreliability. The plaintiff falsely told his solicitors that he had not received money from the business. In a letter from his then solicitors, Core Legal, to the defendant’s solicitors dated 13 December 2004, (MFI-P1, document 1.3) the solicitors wrote this:
We are instructed that our client did not remove the takings of the business from 11 November 2004 to 21 November 2004. If your client maintains that such takings were not banked, please provide us with additional particulars in relation to the amount of money that you allege has not been banked with the Westpac Bank.
The plaintiff evaded admitting the falsity of that instruction for some time in cross-examination (T180-188). Only when it was no longer possible to deny it did he admit that he had misrepresented the situation to his lawyers (T188).
Discussion of legal principles
I have found that there was an oral contract entered into by the plaintiff and the defendant sometime before 15 February 2004 for the sale and purchase of the business. The parties acted upon their agreement. The plaintiff moved into possession of the business on 15 February 2004 and thereafter he received all the income derived from it until he left on 22 November 2004. By 15 February the plaintiff had paid most of the agreed consideration.
Notwithstanding the oral agreement there were matters to be attended to before the agreement could be completed. The plaintiff had to provide the defendant with the details of the purchasers. He never did that. He had to complete payment. He did that on 11 June 2004.
For his part the defendant had to transfer the shares in the company to the purchasers and he had to take steps to have the lease drawn up with the purchasers as lessees. For reasons that I have already discussed he did not do these things.
The oral agreement was binding upon the parties notwithstanding that each had to take further action to complete the agreement (Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101 at 110 [25] per Ipp JA).
The defendant has always asserted that agreement. Late in the proceedings the plaintiff sought to deny the agreement (see plaintiff’s application pars [12] to [15] ibid).
The parties varied their agreement so that it was agreed the plaintiff would purchase only 90 per cent of the business with the defendant retaining 10 per cent. In accordance with that variation the plaintiff paid only 90 per cent of the $526,000 originally agreed as the consideration. Both parties agree there was this variation.
The plaintiff has paid for the business and has not received from the defendant that which he paid for. He is prima facie entitled to recover his money. He may recover because he has paid for a consideration which has failed (Spangaro v Corporate Investment Australia Funds Management Ltd (2003) 47 ACSR 285 at [51] – [52] per Finkelstein J). The defendant does not dispute this position (see paragraph 7 of Defendant’s Outline dated 10 June 2008).
There was not a total failure of consideration. While the plaintiff did not receive the business he contracted to purchase, he received the whole income from the business for the entire time he occupied it. That is from 15 February to 22 November 2004. He may obtain restitution if he has received a benefit or performance other than that agreed upon (see Rowland v Divall ibid). The plaintiff acknowledges this even if it is the plaintiff who was in breach of the agreement (see paragraph 9.2 and 9.2 of the Defendant’s Outline).
The defendant has all along claimed that he is entitled to deny the plaintiff the return of all the monies paid for the business because he suffered a detriment which was caused by the plaintiff (Ethnic Earth Pty Ltd v Quoin Technology Pty Ltd (receivers & managers appointed) (in liq) and Others (No 3) (2006) 94 SASR 104 at [85] to [87]). He has changed his position as a result of the plaintiff’s actions, and in doing so has suffered a loss. In those circumstances he may retain sufficient of the plaintiff’s monies to compensate him for his loss. The defence of change of position may be applied pro tanto. The defendant says that there are two main components of his loss.
1.The plaintiff diminished the stock during his occupancy of the business from $226,000 on 14-15 February to $51,364.24 on 22-23 November 2004. That represents a loss of $174,635.76.
I find that the plaintiff did diminish the stock as the defendant alleges. I find that on 22-23 November the defendant conducted an accurate stocktake and suffered the loss he claims.
2.The plaintiff failed to pay suppliers during his occupancy of the business. The defendant took out a mortgage on his house and paid those suppliers.
I will hear further from the parties as to the exact figures paid by the defendant.
Supplementary submissions
After delivering a draft judgment in this matter I heard submission from counsel about three topics – the exact judgment sum, interest and costs.
Quantum of the judgment
Based on the findings I have made, it is agreed, subject to one disputed adjustment, that the judgment should be that the defendant pay to the plaintiff the sum of $91,025.64. The unresolved issue is whether there should be added to that sum the cost of six items of stock alleged by the plaintiff to have been invoiced to the plaintiff but not delivered before 22 November 2004, the date on which I have found that the defendant resumed control of the business and on which he conducted a stocktake. The disputed invoices are dated in the week before 22 November.
The plaintiff’s argument is that the invoices for these items formed part of Exhibit D35 and hence were included among the items of stock for which the defendant paid. Those items of stock therefore become part of the defendant’s set off against the monies owing to the plaintiff. Given the terms of my judgment, the plaintiff accepts that that would be correct if the goods had been supplied before the stocktake. If however, the goods had not been delivered before the stocktake, the plaintiff should be given credit for them. If they were not delivered until after the stocktake, then the defendant has gained a wrongful advantage. The plaintiff submitted that the invoices arrived before the goods (therefore before the stocktake) and they have added to the items purportedly paid for by the defendant. The defendant has therefore added to the set off against the plaintiff. They have then actually received the goods after the stocktake and sold them, effectively counting the value of the goods twice.
That argument rests upon two assertions. The first assertion is that the invoices, all dated before 22 November 2004, arrived at the shop in Adelaide before the goods themselves arrived. The second assertion is that there would have been several days delay between the arrival of the invoices and the arrival of the goods.
The defendant bears the onus of proving the set off on the counter-claim.
The answer to both assertions is that there was no evidence on the topic. Mr Segal for the plaintiff acknowledged that there was no evidence of the dates of delivery (8 May submissions T4). However he points to a passage of the defendant’s evidence from which he asks me to infer that there might have been a delay of some 7 to 10 days between the arrival at the store of the invoices and the delivery of the goods (submission T5). I set out the passages in the evidence of the defendant upon which Mr Segal relies. They each appear in the cross-examination of the defendant.
Transcript p.477 line 23 to p 478 line 11
QYou have included at p.6 an item called 94 Ettason invoices for 21 September 2004 to 19/11/2004, for $13,721. You say there was a cheque paid on 25 January 2005 and then you refer to pp.35 to 50 and that’s why I took you initially to 35. Do you follow me?
AYes.
QI’m just going to pick some of these, I’m not going to go through all of them. Ettason is where; where does that company carry on business.
AThis company is from Sydney, Ettason.
QIf goods are sent from Sydney, how long does it take for them to get here?
AYou mean from Sydney to Adelaide, how long?
QYes, normally,
ANormally three days, three days to a week; to seven days.
QSo you’d agree with me that if goods were invoiced on 19 November they probably didn’t arrive until on or after 22 November. I don’t think you need to look at that to tell me the answer to that, that’s a normal thing from what you are saying, isn’t it.
AWhat do you mean, could you repeat?
QIf goods were ordered from Ettason on 19 November they probably wouldn’t get here until on or after 22 November.
AProbably, yes.
Transcript p.478 line 33 to p 479 line 5
QOf those items above the line, four of them are invoices dated 19/11/1004.
AYes.
QAnd you know that those items were not likely to have been delivered, and certainly not sold by the business before 22 November 2004.
AI’m not sure. I tell you why. Because 22nd, like I’m hand over the shop is 14th of February 2004. Before 14 February 2004 –
QI ask you to stop
AI’m trying to explain about this question.
Transcript p.479 line 26 to line 31
QThe items in this invoice 0272896 and the three invoices above it, you have claimed in this case are goods that were delivered to the business prior to the 2nd but my client received the benefit of the sales. That’s what you have been claiming, isn’t it.
ANo, not sure –
Following this last passage there was an objection and the topic was not revisited or resolved.
On behalf of the defendant, Mr Morcombe QC referred to an earlier passage in examination-in-chief of the defendant. The defendant was being asked about two bundles of invoices. The first bundle (Exhibit D12) consisted of invoices received before 22 November 2004 which related to goods delivered before 22 November. The invoices for those goods were not received until after 22 November (Exhibit P35). The defendant agreed that the invoices comprising Exhibit P35 were in respect of goods received before 22 November (T475 lines 25-28). That is the evidence where the defendant asserts where the goods the subject of the invoices comprising Exhibit P35 were delivered before 22 November. The defendant did not retract that evidence. Nothing in the cross-examination earlier referred to detracts from that evidence.
I think that submission is correct. There is no evidence or inference from evidence to the effect that the goods the subject of invoices dated the week before 22 November were not delivered. I also agreed with the submission of Mr Morcombe that it would be an unusual business practice for a supplier to send a customer an invoice before dispatching the goods. There is no reason to think therefore that the goods were not accounted for in the stocktake which I have found the defendant conducted accurately on 22 November 2004. There is therefore no reason to add the cost of those goods to the sum due to be paid by the defendant to the plaintiff. The judgment sum is therefore $91,025.64.
Interest
The plaintiff submits that I should order the defendant to pay interest on the judgment debt from the date upon which the judgment sum became payable, namely, 22 November 2004. That is the date on which the plaintiff left the premises and the defendant resumed occupation. Mr Segal argues that the plaintiff has received judgment in his favour and he should receive interest on that judgment sum.
The defendant submits that there should be no order for interest. Mr Morcombe submits three bases for not awarding interest to the plaintiff.
The first basis is that the plaintiff has recovered a judgment sum less than that which was offered by the defendant to the plaintiff in 2007. It is of course true that the plaintiff has succeeded in having judgment awarded in his favour but overall he has not succeeded in his claim. He sought repayment of his whole purchase price less that which he recovered. He based his claim on the assertion that the defendant had breached the agreement, and that he, the plaintiff, had maintained the stock at the level it had been at the time of purchase. He challenged the defendant’s contention that he had undertaken an accurate stocktake upon his resuming occupation of the business. In respect of each of these matters I have rejected the plaintiff’s evidence. All along the defendant has been willing to repay the plaintiff his purchase price less adjustments which I have found justified. The plaintiff has recovered much less than he claimed. Nevertheless I accept that in the ordinary course the plaintiff would be entitled to be awarded interest on his judgment sum.
However I think there are valid countervailing arguments. The defendant submits first that the plaintiff has recovered less than the defendant offered him in 2007. The plaintiff has recovered $91,025.64. On 17 April 2007 the defendant’s solicitors made a written offer to settle upon payment to the plaintiff of $98,997. There was no mention of costs or interest. The plaintiff rejected that offer the following month saying that he was seeking in excess of $270,000 plus costs.
On 30 May 2007 the defendant’s solicitors repeated the offer of $98,000 specifying that each party bear its own costs. The plaintiff replied in October saying he was seeking $367,773.73 inclusive of costs.
On 16 November 2007 the defendant’s solicitors offered $98,997 plus $15,436 interest calculated from 22 November 2004 to 17 April 2007, with costs to be determined by the defendant paying the plaintiff’s costs up to 17 April 2007 and the plaintiff paying the defendant’s costs after that. The plaintiff replied on 17 January 2008 repeating that he sought $367,773.75.
On 15 January 2008 the defendant wrote with a reduced offer of $75,140.68 without interest and each party bearing its own costs. There appears to have been no reply. The parties were unable to settle the matter. The plaintiff was seeking much more than the defendant was offering. The plaintiff recovered less than the defendant was offering until January 2008. That is so unless the plaintiff is now to receive an interest component. I hasten to add that it would be quite contrary to principle to deny the plaintiff an interest component to keep the plaintiff’s judgment below the defendant’s offer. I will not take that matter into account. I do not regard it as irrelevant however to take into account that the plaintiff is claiming interest on a sum that he is likely to have been paid if he had acknowledged that he had run the business down so that on his resuming the business the defendant had to restock the shop and pay suppliers who had been left unpaid. I have found that the plaintiff plainly knew those two facts.
The second basis on which the defendant resists paying interest is that the defendant had to meet two large expenses when he resumed occupation of the business. He had first to restock the shop and then he had to pay the unpaid suppliers. The plaintiff did not directly challenge the defendant’s account that he had borrowed money to meet those two expenses. The plaintiff might at best be said to have indirectly challenged that claim inasmuch as he denied running down the stock and he inferentially questioned the extent of the suppliers that the defendant had to pay. Nevertheless there was no direct challenge to the defendant’s assertion that he mortgaged his house to get the business operating at its former level. What is not clear from the evidence however is precisely how much the defendant borrowed and what interest he paid.
I have found that the shortfall in stock was $174,635.76 [60]. The defendant asserts in the schedule attached to his Submissions for hearing on 8 May 2009 that the amount paid to the suppliers was $221,547.05. Except for the adjustment sought by the plaintiff on 8 May (which I have dismissed) the plaintiff does not dispute that figure. On behalf of the defendant Mr Morcombe submitted that the evidence was that the defendant borrowed $220,000. I cannot find evidence to that effect in the transcript but it would certainly seem likely given the sums that I have found that the defendant paid to restore the business.
I am content to make this finding, that in about November 2004 the defendant borrowed at least as much as the defendant must now pay the plaintiff. He might have borrowed twice that sum. That being so the defendant has been obliged to pay interest for the same period for which the plaintiff now claims interest. On this ground alone I would decline to award the plaintiff interest on his judgment.
Third basis upon which the defendant resists paying interest is that part of the reason for the litigation is the plaintiff’s claim that he received no cash from the business. There is some uncertainty about that proposition and I do not pause to resolve it.
I decline to order the payment of interest by the defendant on the second basis put forward by the defendant but I also regard the first basis as being sound.
Costs
The defendant seeks its costs on a party and party basis from 17 April 2007, the date of its first offer of settlement. The plaintiff resists that application broadly on the basis that the defendant was not prompt in the discovery process. I make no finding on the merits of that claim. There are two reasons for rejecting the plaintiff’s submissions. The first is that when discovery was complete the plaintiff persisted in his claim. Complete discovery did not affect the course of the trial. The second is that I have found that the plaintiff well knew two crucial facts central to the trial. He knew these facts without recourse to documents in the possession of the defendant. He knew that he had significantly run down the stock and he knew that in the later stages of his occupancy of the store he was not paying substantial suppliers. He had instructed his agent to pay only the smaller cash suppliers. His denial of these two facts was the cause of the litigation.
I order the plaintiff to pay the defendant’s costs on a party/party basis as from 17 April 2007.
Orders
1. The defendant pay to the plaintiff the sum of $91,025.64.
2. The plaintiff to pay to the defendant his costs incurred after 17 April 2007, such costs to be taxed or agreed.
3. There will be no order for interest.
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