Coastal Karts Pty Ltd v Bellandra Holdings Pty Ltd (No 2)
[2024] FCA 41
•31 January 2024
FEDERAL COURT OF AUSTRALIA
Coastal Karts Pty Ltd v Bellandra Holdings Pty Ltd (No 2) [2024] FCA 41
File number: QUD 478 of 2019 Judgment of: THOMAS J Date of judgment: 31 January 2024 Catchwords: CONSUMER LAW – misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law – representations made in the sale of a business – where the sale of a business was for three businesses bundled as one – whether the seller informed the buyer that the sale would be for three businesses in one – whether income figures provided were for the three businesses – where one business was removed from the sale – whether the seller informed the buyer of the financial impact of the removal of the business – whether amended financial information was provided – where some equipment inspected was not part of the sale – whether equipment was in good working order – whether equipment required significant repairs or whether repairs were improvements
CONTRACT – where Vendor Finance Agreement is purported to have been validly rescinded – whether rescission valid
Legislation: Competition and Consumer Act 2010 (Cth)
Federal Court of Australia Act 1976 (Cth)
Trade Practices Act 1974 (Cth)
Cases cited: Australian Competition and Consumer Commission v Telstra Corporation Ltd (ACN 051 775 556) (2007) 244 ALR 470; [2007] FCA 1904
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54
Benlist Pty Ltd v Olivetti Australia Pty Ltd [1990] ATPR ¶41-043
Browne v Dunn (1894) 6 R. 67
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25
Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45; [2000] HCA 12
Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Fencott v Muller (1983) 152 CLR 570
Fraser v NRMA Holdings Limited (1995) 55 FCR 452
General Newspapers Pty Limited v Telstra Corporation (1993) 45 FCR 164
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
Gould v Vaggelas (1984) 157 CLR 215
Henville v Walker (2001) 206 CLR 459; [2001] HCA 52
I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109; [2002] HCA 41
Jewelsnloo Pty Ltd v Sengos [2016] NSWCA 309
Julstar Pty Ltd v Hart Trading Pty Ltd [2014] FCAFC 151
Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) 67 LGRA 238
Kimberley NZI Finance Ltd v Torero Pty Ltd (unreported, Federal Court of Australia, French J, 27 July 1989)
Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31
MWJ v The Queen (2005) 222 ALR 436; [2005] HCA 74
Parkdale Custom Built Furniture v Puxu Pty Ltd (1982) 149 CLR 191
Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25
Qantas Airways Ltd v Transport Workers’ Union of Australia (2011) 280 ALR 503; [2011] FCA 470
Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1; [2004] FCAFC 175
R v Tannous (1987) 10 NSWLR 303
Stern v National Australia Bank Ltd (2000) 171 ALR 192; [2000] FCA 294
Trade Practices Commission v Australia Meat Holdings Pty Ltd (1988) 83 ALR 299
Travel Compensation Fund v Tambree (2005) 224 CLR 627; [2005] HCA 69
Wardley Australia Limited v The State of Western Australia (1992) 175 CLR 514
Watson v Foxman (1995) 49 NSWLR 315
Yorke v Lucas (1985) 158 CLR 661
Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Number of paragraphs: 207 Date of hearing: 30 May 2022 Counsel for the Applicants and the Cross-Respondents: Ms J Hewson Solicitor for the Applicants and the Cross-Respondents: Piper Alderman Counsel for the Respondents and the Cross-Claimants: Mr M White Solicitor for the Respondents and the Cross-Claimants: Queensland Legal ORDERS
QUD 478 of 2019 BETWEEN: COASTAL KARTS PTY LTD ACN 628 714 278 AS TRUSTEE FOR THE HAWKES WALLENT FAMILY TRUST
First Applicant
MICHAEL PAUL WALLENT
Second Applicant
ARAHINA EUNICE HAWKES
Third Applicant
AND: BELLANDRA HOLDINGS PTY LTD ACN 168 594 545 AS TRUSTEE FOR THE BELLANDRA FAMILY TRUST
First Respondent
SHANE ANDREW BELLINGHAM
Second Respondent
AND BETWEEN: BELLANDRA HOLDINGS PTY LTD ACN 168 594 545 AS TRUSTEE FOR THE BELLANDRA FAMILY TRUST
Cross-Claimant
AND: COASTAL KARTS PTY LTD ACN 628 714 278 AS TRUSTEE FOR THE HAWKES WALLENT FAMILY TRUST (and others named in the Schedule)
First Cross-Respondent
ORDER MADE BY:
THOMAS J
DATE OF ORDER:
31 JANUARY 2024
THE COURT ORDERS THAT:
1.The Amended Originating Application filed on 18 October 2019 be dismissed.
2.The applicants pay the respondents’ costs of and incidental to the application, to be taxed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
THOMAS J:
On 22 November 2018, Coastal Karts Pty Ltd entered into a Business Contract of Sale (Business Contract) and Vendor Finance Agreement with Bellandra Holdings Pty Ltd, the settlement of which occurred on 26 November 2018.
Coastal Karts Pty Ltd has sought:
(a)a declaration that the Vendor Finance Agreement dated 26 November 2018 was validly rescinded by Coastal Karts on 31 July 2019;
(b)a declaration that the Business Contract of Sale dated 22 November 2018 was validly terminated by Coastal Karts on 31 July 2019;
(c)damages for breach of the Business Contract;
(d)further or alternatively, damages pursuant to s 236 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the ACL);
(e)further or alternatively, orders under ss 237 and 243 of the ACL that:
(i)the Vendor Finance Agreement is void ab initio;
(ii)Bellandra Holdings and the second respondent, Mr Shane Bellingham, refund to Coastal Karts all monies paid under the Vendor Finance Agreement;
(iii)Bellandra Holdings and Mr Bellingham pay to Coastal Karts an amount of money sufficient to compensate it for the losses it has suffered as a result of entering into the Vendor Finance Agreement and the Business Contract;
(f)declarations as to the validity of Coastal Karts’ rescission of the Vendor Finance Agreement and termination of the Business Contract;
(g)interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth); and
(h)costs.
Bellandra Holdings Pty Ltd filed a cross claim on 17 September 2019 seeking:
(a)damages for breach of contract in the sum of $89,003.95, being the amount of the Principal Sum and Interest payable by the first cross-respondent, Coastal Karts, under the Vendor Finance Agreement as at the date of this claim;
(b)interest at the rate of 5% per annum accruing monthly pursuant to cl 4(b) of the Vendor Finance Agreement;
(c)alternatively, interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth);
(d)costs.
BACKGROUND
Mr Michael Wallent, the second applicant, and Ms Arahina Hawkes, the third applicant, are directors of Coastal Karts Pty Ltd as trustee for the Hawkes Wallent Family Trust, the first applicant (together referred to as “Coastal Karts”).
Mr Wallent, Ms Hawkes and Coastal Karts have, at all material times, been “persons” within the meaning of ss 236, 237 and 243 of the ACL.
Mr Bellingham was at all material times the sole director of Bellandra Holdings Pty Ltd as trustee for the Bellandra Family Trust, the first respondent (together referred to as “Bellandra Holdings”).
Mr Bellingham has at all material times been a “person” within the meaning of ss 236, 237 and 243 of the ACL.
Bellandra Holdings has at all material times acted by and through Mr Bellingham.
Bellandra Holdings has at all material times been:
(a)a “corporation” as that term is defined in ss 4(1) and 130 of the Competition and Consumer Act 2010 (Cth) for the purpose of the ACL, being a trading corporation formed within the limits of Australia;
(b)a “person” within the meaning of ss 18, 236, 237 and 243 of the ACL;
(c)acting in relation to the matters the subject of this action in the course of its trade or commerce, as that phrase is defined in s 2(1) of the ACL.
MISLEADING OR DECEPTIVE CONDUCT – RELEVANT LEGAL PRINCIPLES
The legal principles do not seem to be in dispute between the parties. The summary below is largely taken from the submissions of Coastal Karts. No contrary view has been put forward by Bellandra Holdings.
Section 18 of Schedule 2 of the ACL provides that “a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”.
Section 4 of the ACL provides that, if a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act), and the person does not have reasonable grounds for making the representation, the representation is taken, for the purposes of the ACL, to be misleading.
Section 18 is not limited to misleading or deceptive representations. The question is whether the respondent’s conduct, which may include acts, omissions, statements or silence, is misleading or likely to mislead or deceive: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54 (TPG Internet) at [49] per French CJ, Crennan, Bell and Keane JJ.
As is obvious in considering whether conduct is misleading or deceptive, it is necessary to identify clearly the conduct to be characterised.
A misleading representation may be made by omission, including silence. However, mere silence does not amount to misleading conduct unless the circumstances are such as to give rise to a reasonable expectation that, if some relevant fact exists, it would be disclosed: Kimberley NZI Finance Ltd v Torero Pty Ltd (unreported, Federal Court of Australia, French J (as his Honour then was), 27 July 1989), approved in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 (Demagogue) at 41 per Gummow J (with whom Black CJ and Cooper J agreed). See also French CJ and Kiefel J (as her Honour then was) in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31 (Miller) at [18]- [19].
Spoken words must be proven with a degree of precision sufficient to enable the Court to be reasonably satisfied that they were in fact misleading in the proved circumstances: Watson v Foxman (1995) 49 NSWLR 315 at 318-319, cited in Julstar Pty Ltd v Hart Trading Pty Ltd [2014] FCAFC 151 at [73] per Dowsett, Rares and Logan JJ.
The approach to characterising the conduct is an objective one and requires concluding whether, as a question of fact, the impugned conduct, viewed as a whole, has a tendency to lead a person into error: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 (Campbell) at [25] per French CJ (who agreed with Gummow, Hayne, Heydon and Kiefel JJ); TPG Internet at [49]; and Miller at [15]. Conduct is likely to mislead or deceive if there is a real or not remote chance or possibility that it will have that effect: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 87 per Bowen CJ, Lockhart and Fitzgerald JJ. It is insufficient for the impugned conduct to only cause confusion or wonderment.
The characterisation of the conduct is to be determined on the basis of the conduct of the respondent as a whole and by reference to the context of all relevant surrounding facts and circumstances: Campbell at [25]; TPG Internet at [49]; and Miller at [15]. As McHugh J stated in Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 (Butcher) at [37], it invites error to look at isolated parts of the respondent’s conduct.
The question involves the characterisation of the relevant conduct. Evidence that persons have in fact been misled or deceived by the conduct is not an essential element, however, it can in some cases be relevant and material: Parkdale Custom Built Furniture v Puxu Pty Ltd (1982) 149 CLR 191 at 198 per Gibbs CJ.
It is not necessary to prove that the respondent intended to mislead or deceive, however, evidence of such an intention may constitute evidence that the conduct was likely to succeed in being misleading or deceiving, and may make a finding of contravention more likely: Yorke v Lucas (1985) 158 CLR 661 (Yorke) at 666 per Mason ACJ, Wilson, Deane and Dawson JJ.
Where the conduct or representation is in the form of an advertisement, the “dominant message” or “general thrust” of the advertisement is important. It is nevertheless important to have regard to the whole advertisement because context is or may be important. It may also be relevant to have regard to the external context in which a consumer is likely to view an advertisement: TPG Internet at [45]-[49].
In commercial dealings between individuals or individual entities, relevant circumstances include the knowledge of the person who claims to have been misled (in this case, Mr Wallent and Ms Hawkes) and any common assumptions or practices established between the parties or prevailing in the particular activity or business in which they are engaged: Miller at [20]; Butcher at [37]; and Campbell at [26]-[27].
That is in contrast to the situation where the conduct is directed to the public or the market, in which case the assessment is by reference to a hypothetical ordinary person: Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45; [2000] HCA 12 at [100]-[103] per Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ.
In cases relating to negotiations leading up to the execution of a private agreement for sale, it has been said that nothing in s 18 of the ACL (or its predecessor, s 52 of the Trade Practices Act 1974 (Cth) (the TPA)) strikes at the traditional secretiveness and obliquity of the bargaining process. Traditional bargaining may be hard, without being in the statutory sense misleading or deceptive. Full disclosure is not required in every situation and no one expects all the cards to be on the table. See also French CJ and Kiefel J in Miller at [21]; Gleeson CJ in Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 at 475; Macfarlan JA in Jewelsnloo Pty Ltd v Sengos [2016] NSWCA 309 at [86]; and Fraser v NRMA Holdings Limited (1995) 55 FCR 452 at 467 per Black CJ, von Doussa and Cooper JJ. The bargaining process is nonetheless not to be seen as a licence to deceive: Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25 at 26 per Burchett J.
The particular facts must be considered in light of the ordinary incidents and character of commercial behaviour: General Newspapers Pty Limited v Telstra Corporation (1993) 45 FCR 164 at 178 per Davies and Einfeld JJ.
Authority is clear on the issue that, notwithstanding that a representation is false, if the representee does not rely upon it, the representee has no case: Gould v Vaggelas (1984) 157 CLR 215 (Gould) at 236 per Gibbs CJ.
If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract, there arises a fair inference of fact that they were induced to do so by the representation: Gould at 236.
That inference may nonetheless be rebutted, for example, by showing that:
(a)before the representee entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true; or alternatively
(b)it was plain that whether the representee knew the facts or not, the representee did not rely on the representation: Gould at 236.
In assessing or characterising the relevant conduct or representation, it is necessary to have regard to any relevant disclaimer. The substance, effect and prominence of the disclaimer must be considered in the context of the conduct or representation as a whole: Australian Competition and Consumer Commission v Telstra Corporation Ltd (ACN 051 775 556) (2007) 244 ALR 470; [2007] FCA 1904 at [116] per Gordon J, citing the judgment of the Full Court in Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) 67 LGRA 238.
The question must ultimately be whether any disclaimer communicates information in such a way or in such a manner that the effect of any otherwise misleading conduct or representation is reversed or erased: Butcher at [152].
If the disclaimer actually has the effect of erasing whatever may have been misleading in the prior conduct, the clause will be effective, not by an independent force of its own, but by actually modifying the conduct: Benlist Pty Ltd v Olivetti Australia Pty Ltd [1990] ATPR ¶41-043 at 51,590 per Burchett J.
A disclaimer in a document or on a website may be more effective than one on, for example, a television advertisement as the latter is likely to be more transient, ephemeral or less noticeable: TPG Internet at [47].
Causation
In order to recover damages, Coastal Karts must prove that the loss or damage suffered was “because of” conduct in breach of the ACL: s 236.
The issue is to be approached in a practical or common sense way (Wardley Australia Limited v The State of Western Australia (1992) 175 CLR 514 at 525 per Mason CJ, Dawson, Gaudron and McHugh JJ), although it has subsequently been doubted whether there is any “common sense” notion of causation which can provide a useful legal norm: Travel Compensation Fund v Tambree (2005) 224 CLR 627; [2005] HCA 69 at [45] per Gummow and Hayne JJ.
As long as the breach materially contributed to the damage, or had a substantial effect on the person’s considerations, causation will be established. The breach need not be the sole cause of the alleged loss or damage: I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109; [2002] HCA 41 (HTW Valuers) at [33] per Gleeson CJ, [57], [62] per Gaudron, Gummow and Hayne JJ and [90] per McHugh J; and Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [14] per Gleeson CJ, [61] and [63] per Gaudron J, subject now to statutory apportionment considerations (s 137B of the Competition and Consumer Act 2010 (Cth)).
Relevant to the sale of a business, if a material representation is materially likely to induce the representee to enter into a contract and the representee actually enters the contract, a fair inference arises that the representation operated as an inducement: Gould at 236-238.
The inference of inducement may be refuted by other relevant circumstances, with the respondent bearing the evidentiary onus as to why the inference ought not be drawn. One example of such circumstances is where the applicant either by his or her words or conduct, disavows any reliance on the misrepresentation: Gould at 238.
Accessorial liability
If a person suffers loss or damage by reason of the misleading or deceptive conduct of another person, s 236 of the ACL allows the claimant to recover the amount of the loss or damage by action against not only the person who engaged in the contravention, but also any other person involved in the contravention.
A person will only be regarded as “involved” in a contravention if the person intentionally participated in the contravention. This requires actual, not constructive, knowledge of the essential matters or facts that make up the contravention: Yorke at 667, 674; Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1 at 4-5 per Finkelstein J; and Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1; [2004] FCAFC 175 at [9] per Heerey, Sundberg and Dowsett JJ.
Being “knowingly concerned” in a contravention requires association with, implication in, or a practical connection to the contravening conduct: Qantas Airways Ltd v Transport Workers’ Union of Australia (2011) 280 ALR 503; [2011] FCA 470 at [324]-[325] per Moore J; Trade Practices Commission v Australia Meat Holdings Pty Ltd (1988) 83 ALR 299 at 357 per Wilcox J, citing Ashbury v Reid [1961] WAR 49 (Ashbury).
A person cannot become “involved” in an act merely by reason of his or her knowledge of the conduct pursued. There has to be something that implicates the person such that he or she becomes associated with the conduct: R v Tannous (1987) 10 NSWLR 303 at 307-308 per Lee J, citing Ashbury at 51. A close, rather than a remote, involvement in the contravention is required: Fencott v Muller (1983) 152 CLR 570 at 584 per Gibbs CJ.
The law is not in dispute between the parties. The dispute relates to the facts concerning the representations made and the outcome will turn upon the findings made. With that in mind, Coastal Karts was asked to outline the findings required in order for its claim to be successful.
FINDINGS REQUIRED BY COASTAL KARTS
Coastal Karts has submitted that the following are the matters that need to be found for Coastal Karts’ case of misleading and deceptive conduct to be made out.
In relation to the profitability representations, the required findings are that:
i.At no time did [Mr] Bellingham inform [Mr] Wallent that what [Mr] Bellingham was seeking to sell was three separate and discrete businesses, being Eco Noosa, Nauticycles [Noosa] and Noosa SUP, which were to be combined together and sold as one ‘package’;
ii.At no time did [Mr] Bellingham inform [Mr] Wallent that the June 2018 Figures were an amalgamation of the trading performance of three separate businesses between October 2017 to June 2018, being Eco Noosa, Nauticycles [Noosa] and Noosa SUP;
iii.At no time did [Mr] Bellingham inform [Mr] Wallent that removing Noosa SUP from the sale affected the accuracy of the June 2018 Figures in any way, or that the June 2018 Figures no longer represented the financial performance of the Business to be sold, in the telephone call on 5 October 2018, during the Inspection on 21 October 2018 or at all; and
iv.[Mr] Bellingham did not provide [Mr] Wallent with the Amended June 2018 Figures, at the Inspection on 21 October 2018 or at all.
For the reasons that follow, the answers to the required profitability findings are as follows:
(i)Mr Bellingham did inform Mr Wallent that the business being sold was three businesses (Eco Noosa, Nauticycles Noosa and Noosa Stand Up Paddle (Noosa SUP)) combined together and sold as one package.
(ii)Mr Bellingham did inform Mr Wallent that the June 2018 Figures were an amalgamation of the three businesses.
(iii)Mr Bellingham informed Mr Wallent that the removal of Noosa SUP would reduce the income generated by approximately $65,000.
(iv)Mr Bellingham provided Mr Wallent with the Amended June 2018 Figures at the inspection on 21 October 2018.
Coastal Karts provided profitability representations which were derivatives of the above required findings. There were some profitability representations which were not specifically addressed in the list of required factual findings above which related to the representation that the business would make in excess of the June 2018 Figures, be profitable in future years, would provide steady and consistent income, and would be a “turn-key sale”, and that there would be a “huge increase” in business since the Noosa airport opened and received direct flights from New Zealand.
There is no evidence to suggest that the business was not a “turn-key sale”. As I understand it, a “turn key sale” is one where the purchaser can take over the business and commence trading immediately. That seems to have been what occurred.
In relation to the “business actually making in excess of the June 2018 Figures”, the particularisation of that assertion was a reference to Mr Bellingham having said that the June 2018 Figures related only to seven months of trading and opening only five days per week. There was no suggestion that the business would provide a return in excess of the figures provided.
Mr Bellingham told Mr Wallent via email there had been a “huge increase” in business since there were direct flights out of NZ this year. The email sent actually said that “[w]ith the new international airport opening in 18 months … [t]he place is going to boom … [w]e have already seen a huge increase since direct flight out of NZ this year with tourism” (errors in original). The comments seem to be general comments about tourism in Noosa and nothing specific about Eco Noosa.
The assertions that representations were made regarding the future profitability of the business in circumstances where financial information had been provided do not appear to be substantiated, noting also that during the hearing an affidavit was tendered which showed that the business had made profits in recent financial years.
In relation to the plant and equipment representations, the required findings are that:
i.During the inspection on 21 October 2018, [Mr] Bellingham did not inform [Mr] Wallent that he was inspecting a [D]uffy boat called “Lady Ann”, which was not part of the plant and equipment that was being sold with the Business; and
ii.The two [D]uffy boats, “Lady Mary” and “Lady Isabella”, which were sold with the Business:
A.were unreliable and not in good working order; and
B.required significant repair so as to put them in good working order and available for hire.
With respect to the required plant and equipment findings, the answers are as follows:
(i)Mr Bellingham did inform Mr Wallent that the Duffy boat he was inspecting was the “Lady Ann”.
(ii)Mr Bellingham’s comments that the “Lady Mary” and “Lady Isabella” were in good working order were justified and the repairs alleged to have been required to put the boats in good working order were improvements of the design of the Duffy boats.
Coastal Karts also provided plant and equipment representations which were derivatives of the required plant and equipment findings. Not canvassed above is the allegation that Mr Bellingham told Mr Wallent that the Duffy boats were in Full Commercial Survey. As to that asserted representation, Mr Bellingham provided Certificates of Survey for each of the Duffy boats to Mr Wallent which showed that neither of the Duffy boats was in Full Commercial Survey prior to the Business Contract being entered into.
REPRESENTATIONS
Coastal Karts contended that Mr Wallent relied upon the profitability representations and plant and equipment representations made by Mr Bellingham in entering into the Business Contract and Vendor Finance Agreement.
Ms Hawkes was not involved with the negotiations and relied upon Mr Wallent conveying the information provided by Mr Bellingham.
There was a dispute between the parties as to what was said during various discussions.
Clearly, the contents of the contemporaneous documents which were circulating between the parties at that time have some bearing on what might have been discussed during the conversation as to which one participant to the conversation has a certain recollection which was rejected by the other participant to the conversation.
I will consider the contents of each of those contemporaneous documents when ruling on what was said.
The documents are also central because many of the written representations alleged by Coastal Karts are derived from those documents.
In fact, Coastal Karts alleged that, by providing the June 2018 Figures, identified as being the “trading figures of the business” (which Mr Wallent understood to be just Eco Noosa), and remaining silent about the fact that the figures included the three businesses, Bellandra Holdings represented that the business had generated those figures. The allegation was that, by silence, in failing to disclose that the June 2018 Figures were an amalgamation of three separate businesses’ finances, being Eco Noosa, Nauticycles Noosa and Noosa SUP, the conduct was misleading or deceptive.
At a time prior to 18 September 2018, Mr Bellingham placed an advertisement on the internet site “Gumtree” for the sale of the business “Eco Noosa”. The parties are not agreed as to whether the advertisement was first placed on Gumtree in May 2018 or September 2018, but, for present purposes, the exact date is not relevant.
The advertisement was not put into evidence.
On 18 September 2018, having seen the advertisement, Mr Wallent called Mr Bellingham to enquire about Eco Noosa. The parties did not agree on some aspects of what was said during that conversation.
Mr Bellingham told Mr Wallent that the purchase price was $365,000, that there were two other interested buyers and that Mr Bellingham would send through financials if Mr Wallent signed a confidentiality agreement.
Of relevance to the current issues, the area of non-agreement between the parties related to whether it was made clear by Mr Bellingham to Mr Wallent that the sale was to include “three businesses in one” – said to be because the owners of the businesses Nauticycles Noosa and Noosa SUP also wanted to sell their businesses and move on and they had packaged the businesses together as the combined business listed for sale. In the same vein, the parties were not in agreement as to whether it was made clear that the figures which were provided in the June 2018 Figures were for all three businesses or for just one business, Eco Noosa.
Just after the telephone discussion took place and before the date upon which the June 2018 Figures were sent, Mr Bellingham sent two documents on 18 September 2018 to Mr Wallent, namely the “Welcome to Eco Noosa” (the Welcome Document) and the “Eco Noosa Plant & Equipment List” (the Equipment List) that would be included in the sale, and which included a value attributed to each piece of plant and equipment, the total of which was $285,600.
Coastal Karts referred to the expressions used in the email from Mr Bellingham to Mr Wallent on 18 September 2018 (which included the Welcome Document and the Equipment List) in which Mr Bellingham stated:
please find the attached information for Eco Noosa … this information will give your the nuts and bolts of it … I have supplied P&L figures based based on from when we purchased it up until June 30 2018, as well as plant and equipment list and /description of the business.
In that time from Oct we closed the business for Dec for renovations and as it didn’t work out with our son after January, I had to close it for February while I completed the build on The Drover,. We are currently running it 5 days a week, closing Monday and Tuesdays. This may sometimes vary depending on the weather and holiday periods.
in a nutshell though its a fantastic business the offers steady consistent income (with benefits) as well as an awesome lifestyle. While we have done all the hard work to get it to where it is now , there is still so much room for potential growth and expansion. With how we have it set up now it would be a simple walk in turn key operation business. As i discussed with you over the phone we have 2 other genuine buyers, one of which have is made us an offer..... however as I said to you it is not just about the money and getting a sale for us. We want to see the business continue to grow and we need to be confident that the potential new owners will be capable of that. As we also have our other boat The Drover on the river and will be operating that as well as moving closer to the area, it is in our best interest and reputation to see it continue to be as successful with the new owners, as well as we would like to have the opportunity as I mentioned to you, that on weekends when we don’t have bookings, that we could hire a berth at the jetty to sell woodfired pizzas from.
(errors in original)
Coastal Karts submitted that the email:
(a)referred to “Eco Noosa” and “the business” and, by reference to “the business”, utilised the pronoun “it”;
(b)did not refer to “businesses”, “Nauticycles Noosa” or “Noosa [SUP]” and, by reference to the business, did not utilise the pronouns “they” or “them”;
(c)did not state that the figures were “indicative” or that they were “an amalgamation of three separate businesses”;
(d)referred to the “business” being closed, which Mr Bellingham accepted was not Nauticycles Noosa or Noosa SUP; and
(e)referred to the “business” that “we” purchased, being the business purchased by Mr Bellingham, not Mr Howard-Clarke or Mr Van Der Vegt (the respective owners of Noosa SUP and Nauticycles Noosa).
Coastal Karts also pointed to the fact that the plant and equipment list referred only to “Eco Noosa” in the title and included 12 Nauticycle water spin bikes, stand up paddle boards and paddles, leashes and life jackets for stand up paddle boards.
The four page Welcome Document outlined the history of Eco Noosa, which had been known as Malu Os between August 2013 and October 2017 before being rebranded in October 2017 when it was purchased by Bellandra Holdings. In the Welcome Document, Bellandra Holdings said:
After consideration we decided that we would look at purchasing the Nauticycles and incorporating them with Eco Noosa …
In May of this year after incorporating the Nauticycles …
The last and most recent addition to the jetty is that of Noosa Stand Up Paddle boards, hire & lessons … we have now incorporated Noosa Stand Up Paddle as part of Eco Noosa’s Eco friendly river adventures as well.
As to Nauticycles Noosa and Noosa SUP, it said the following:
Over the Christams period we met and became friends with Mark from Nauticycle Noosa who had his water bikes located down at jetty 186 . After discussions we started putting a couple of his nauticycles up on the jetty at Eco Noosa to see if better exposure would increase the hire volume with them. It worked great, we continued promoting the nauticycles from Eco Noosa until April when after talking with Mark, he informed us that due to Family circumstances he was looking at moving back to Adelaide . After consideration we decided that we would look at purchasing the Nauticycles and incorporating them with Eco Noosa as they complemented the Eco aspect of the business perfectly .
In May of this year after incorporating the Nauticycles and installing a new modular jetty system to allow for emarking and disembarking of the Nauticyles, we decided to do the second stage of the facelift by firstly replacing the old deck area ledge with a new timber deck area and handrail …
The last and most recent addition to the jetty is that of Noosa Stand Up Paddle boards, hire & lessons. While we were reluctent to introduce SUP’s to our jetty as they were located directly next door to us, we approched the owner to find out his long term plans for his business. As it turned out he had recently listed it for sale as he has another business in Seychelles in East Africa specialising in surfing which he is looking to put in efforts into. So we have now incorporated Noosa Stand Up Paddle as part of Eco Noosa’s Eco friendly river adventures as well.
So Eco Noosa is not just the only 100% Eco Friendly jetty now in Noosa, but also has the largest range of Sup’s , Kayaks, and only hirer of Nauticycles, Electric Eco Boats and bikes along the foreshore.
…
(photographs omitted; errors in original)
The text of the Welcome Document has a bearing on what was meant by the words used in the email and the discussions between the parties. The document seemed to be in the nature of a “promotional” or “marketing” document. It opened with a history of Eco Noosa, including the decision to change the name to Eco Noosa from Malu Os. The document also referred to the decision to increase the offering by acquiring kayaks and good quality bikes and the decision to close the business for a month to enable a “much needed facelift”.
This document is unambiguous in saying that “Eco Noosa is not just the only 100% Eco Friendly jetty now in Noosa, but also has the largest range of Sup’s , Kayaks, and only hirer of Nauticycles, Electric Eco Boats and bikes along the foreshore” (errors in original).
From the Welcome Document, it was clear that Bellandra Holdings regarded the inclusion of the other businesses as a positive aspect of his business. It was a “selling point”. That seemed to be a major focus of the Welcome Document. Its emphasis was on the benefits of diversification and what the expanded entity (the business as described) was able to achieve.
The list of plant and equipment included in the sale also pointed to the inclusion of Nauticycles Noosa and Noosa SUP with Eco Noosa. It included the following:
(a)“12 x Nauticycle Water Spin Bikes, spare drive shafts, pumps, steering ru”;
(b)“22 Stand Up Paddle Boards”;
(c)“24 Stand Up Paddles”;
(d)“24 Stand Up Leg Leashes”;
(e)“10 Life Jackets for Stand Up Paddle Boards”.
The total of the plant and equipment list value was $285,600. Of that, $118,400 comprised $108,000 for the nauticycles; $8,000 for the stand up paddle boards; $2,000 for the stand up paddles; $200 for the stand up leg leashes; and $200 for the life jackets for stand up paddle boards.
With the contents of the Welcome Document, the fact that the plant and equipment of Nauticycles Noosa and Noosa SUP was included in the list of plant and equipment which were part of the sale supports the conclusion that Coastal Karts must have been aware of the nature of the business being sold – that Nauticycles Noosa and Noosa SUP were part of the business described as “Eco Noosa”.
The contents of the documents also are consistent with Mr Bellingham having said, during the discussions, that the three businesses were included in the sale. His evidence was that this took place; and there was no logical reason for Mr Bellingham not to have mentioned what was being sold during the conversation, given that this was made obvious in the documents which were to be circulated immediately after the conversation and which was promoted as a benefit. The contents of the documents support the recollection of Mr Bellingham.
In those circumstances, it would be consistent for Mr Bellingham to have referred to the incorporation of the new businesses into what was being sold, “Eco Noosa”. Indeed, it would have been at odds with the promotional document if the topic was not raised, as a benefit, during that first conversation. Bellandra Holdings would, logically, and likely, be aiming to emphasise those aspects.
Again, given the thrust of the Welcome Document, it would be consistent for Bellandra Holdings, which was promoting that theme, and plainly doing so with a view to boosting the attractiveness and value of the combined business to a prospective purchaser, to have prepared indicative figures to demonstrate what the business being sold could achieve. By their nature, those would be composite figures.
There was no reason not to inform Coastal Karts of what was being proposed and of the nature of the figures provided.
Consistent with what was said in the Welcome Document regarding incorporation of the businesses into Eco Noosa, and that the list included the plant and equipment from Nauticycles Noosa and Noosa SUP, if Mr Wallent was not aware that he was being provided with the figures for the businesses being sold, it would reasonably be expected that he would seek figures which included the contribution from these businesses which were offered as part of the transaction. The fact that no such enquiry was made (in any level of detail) supports a conclusion that Coastal Karts was aware of the fact that the June 2018 Figures included the figures for Nauticycles Noosa and Noosa SUP. It is consistent with Mr Wallent not needing to ask because he was aware the figures were included.
Mr Bellingham said in evidence that he was expecting that he would be contacted by accountants who would seek additional information and undertake due diligence. Mr Paul Green (an expert witness called by Coastal Karts) pointed to the fact that generally a purchaser would undertake such due diligence. In those circumstances, with the expectation that Mr Bellingham said he had (which was not challenged by Coastal Karts and was consistent with the view of Mr Green), there would have been no point in not disclosing that the figures provided were an amalgamation of the figures from the three businesses, which was an estimate of what could be achieved in the business which was being sold. To hide the fact that the figures were amalgamated figures would have been counterproductive as the fact that the figures were an amalgamation would have become obvious when the expected due diligence occurred.
On 19 September 2018, at 9:57 am, Mr Wallent sent an email in reply to Mr Bellingham’s email as follows:
Thanks for sending through all that without the confidentiality agreement, it was an interesting read last night.
You're information is pretty safe with me over here in the West.
Unfortunately the P&L didn't come through on the second email that you sent. Any chance you can resend it please?
One more question, how do you enjoy living on the Sunshine Coast?
(errors in original)
On 19 September 2018, at 10.55 am, Mr Bellingham sent the first of two emails. The first referred to living on the Sunshine Coast and spoke in glowing terms about the opportunities in Noosa. Mr Bellingham also referred to other interested buyers:
You sounded genuine when we spoke and I figured as much with you living in WA. Like living on the Sunshine Coast … it’s terrible
With the new international airport opening in 18 months . The place is going to boom. We have already seen a huge increase since direct flight out of NZ this year with tourism . If you are looking to move to the coast you are better to do it sooner than later …. Noosa has just had the best house sales in Qld !! Beating Gold Coast !!
It is really starting to go off,hence why why won’t be able to run both businesses.
We have been made an offer from the other couple , an hour ago in regards to the business. However before we make a decision would like to see where you’re at after viewing financials , as well as have a father and son from NSW looking at coming to have a look. As I said , we don’t just want to sell but want to sell to the best suited , so the business keeps growing .
Will send financials shortly.
(errors in original)
The second email, at 1.28 pm, which attached a document referred to as the “June 2018 Figures”, was as follows:
Please find the following information. Keep in mind we only purchased the business Oct 1 and then closed for all of Dec and most of January. So in reality these figures are applicable to 7 months trading. We are only operating 5 days due to my other work commitments.
(error in original)
The June 2018 Figures was a single page document containing income, expense and combined profit figures and was headed:
Bellandra Family Trust
Eco Noosa
Income Statement for the year ended 30th June 2018
(bold omitted; underlining in original)
Mr Bellingham said he had received financial information from Nauticycles Noosa and Noosa SUP which he combined with the existing financial statements to create the June 2018 Figures document. Mr Bellingham said that he considered it necessary to combine the three businesses as Nauticycles Noosa and Noosa SUP were, at that point, still being operated separately. Mr Bellingham removed expenses from Nauticycles Noosa and Noosa SUP which he considered would not be incurred after the purchase as these expenses would already be incorporated in the Eco Noosa figures. The trading figures of Noosa SUP were from July 2017 to June 2018 and were reduced by Mr Bellingham from $74,614 to $65,378.66 to better reflect the income generated between October 2017 and June 2018. The adjustment to the sales was calculated by adding up the individual sales that occurred during that period. The Nauticycles Noosa sales figure was calculated by adding together the three quarters from October 2017 until June 2018 for a total of $15,250.99. The adjusted operating expenses for Nauticycles Noosa and Noosa SUP were $4,788.01 and $3,957 respectively. The operating expenses for Eco Noosa was $48,616.08. The Eco Noosa sales figure was $79,339.98. For the period of October 2017 to June 2018 the calculated profits were:
(a)Eco Noosa had a profit of $21,723.90.
(b)Nauticycles had a profit of $10,462.98.
(c)Noosa SUPs had a profit of $61,421.66.
(d)The combined profit was $93,608.54.
These calculations were contained in a handwritten document said to have been prepared by Mr Bellingham at the time of the discussions. The figures matched those in the June 2018 Figures.
The document which was prepared by Mr Bellingham at the time seems to have been the product of a methodical process to assess what the combined result would be. The document must have been prepared contemporaneously as the figures fed into the June 2018 Figures. He viewed the separate figures for Eco Noosa, Nauticycles Noosa and Noosa SUP and made the calculations deriving a total profit of $150,969.63 and a net profit of $93,608.50, which were used in the June 2018 Figures.
All of these factors support a conclusion that Mr Bellingham is to be believed as to his evidence that he informed Mr Wallent of the incorporation of the two businesses into Eco Noosa and that the figures were amalgamated figures and related to the total business being sold.
Coastal Karts pointed to the fact that Mr Bellingham said that he sent the June 2018 Figures because he did not want to miss a sale. The submission continued that he considered it a waste of time to provide full financial documents at the outset. That approach is not misleading provided that it was explained to Mr Wallent that the figures were amalgamated figures. If the incorporation of Nauticycles Noosa and Noosa SUP into the Eco Noosa business made financial sense, and was done with a view to enhancing the value of the three components, Bellandra Holdings might understandably in those circumstances wish to put forward the figures that could be achieved with the combined business actually being sold (including the removal of any duplicated expenses such as rent, insurance, electricity, IT and the like). Bellandra Holdings might take the view that doing so would highlight what was possible, and so not “miss a sale”. The figure achievable would not be the same as the figures individually from the three separate entities. Such a statement does not adversely reflect on Mr Bellingham.
It would, of course, be a matter for the purchaser to undertake the due diligence described by Mr Green.
Coastal Karts noted that the Welcome Document referred to “incorporating” Nauticycles and Noosa SUP into the business whilst, at the time of the preparation of the June 2018 Figures, Eco Noosa, Nauticycles Noosa and Noosa SUP were all trading under separate Australian Business Numbers (ABNs).
This fact would not have been relevant to Mr Wallent’s evidence. It is not suggested that he was aware of the ABN structure for Eco Noosa, Nauticycles Noosa or Noosa SUP.
Rather, it seems to be directed to the credibility of Mr Bellingham.
There is no reason why, even with separate ABNs, Nauticycles Noosa and Noosa SUP could not have been incorporated into the business which was being offered for sale. The fact that there was a discussion of “incorporating” Nauticycles Noosa and Noosa SUP in circumstances where there were separate ABNs does not reflect on the credit of Mr Bellingham in an adverse way.
Coastal Karts pointed to the fact Mr Bellingham proposed that Mr Wallent purchase the water spin bikes (nauticycles) but then, in oral evidence, Mr Bellingham said that he did not pay for the nauticycles until after the sale of the business. Again, this is a matter which was raised by Coastal Karts in relation to the credit of Mr Bellingham. There is no legal difficulty in effectively on-selling a business where the price on the original sale might come from the final sale. This does not reflect adversely on Mr Bellingham’s credit.
It was submitted that Mr Bellingham had previously deposed to the fact that Nauticycles Noosa and Noosa SUP owned their respective assets. This fact does not seem to be relevant to the transaction contemplated between Coastal Karts and Bellandra Holdings. There is no legal reason why those assets could not be offered for sale, by arrangements with the owner, to a prospective buyer. Again, this does not reflect on Mr Bellingham’s credit.
It was submitted that, overall, the separate financial accounting and ownership of assets by each of Nauticycles Noosa and Noosa SUP was inconsistent with those businesses being “incorporated” into the Eco Noosa business. The fact that there may have been separate financial accounting and ownership of assets by each of Nauticycles Noosa and Noosa SUP was not inconsistent with Bellandra Holdings acquiring the assets (regardless of when payment was to be made) and incorporating those assets into an entity to be sold. The separate financial accounting and ownership of assets is not inconsistent with each of Nauticycles Noosa and Noosa SUP being incorporated, for sale, into the Eco Noosa business.
The assertions made by Mr Bellingham in relation to what was said as to the incorporation of the businesses, and what was said as to the June 2018 Figures, are consistent with the contemporaneous documents.
I conclude that Mr Bellingham did inform Mr Wallent that the sale was of a business in which Nauticycles Noosa and Noosa SUP was incorporated and that Mr Wallent was aware that the June 2018 Figures were an estimate made by Mr Bellingham of what the combined business would achieve.
The fact that Mr Wallent made no further enquiries is also consistent with what Mr Bellingham said was discussed. By the time Mr Wallent received the June 2018 Figures, he had received both the Welcome Document as well as the summary of the plant and equipment. Leaving aside my finding as to what Mr Bellingham informed Mr Wallent of during the conversations, after receipt of the documents, it must have been clear that the business being sold included Nauticycles Noosa and Noosa SUP. This was obvious from the text of the Welcome Document as well as the equipment which was included in the list which was provided.
Coastal Karts pointed to the discussions concerning a confidentiality agreement as an inconsistency with Mr Bellingham’s evidence that should be taken into account in relation to Mr Bellingham’s credit. Coastal Karts pointed to the fact that neither Nauticycles Noosa nor Noosa SUP required that financial information not be released. It was submitted that Mr Bellingham’s own evidence was that he would send full financial information only after he received the signed confidentiality agreement from Mr Wallent in circumstances where Mr Bellingham accepted that he had not sent Mr Wallent any confidentiality agreement to sign.
It was accepted by both parties that Mr Bellingham did not provide Mr Wallent with a confidentiality agreement to sign. It was also accepted by both parties that Mr Bellingham did not provide the full financial information, with the June 2018 Figures being described as “indicative figures”. As the transaction progressed, Mr Wallent did not ever request any full financial records nor did he pursue the request for this information. It was clear that Mr Bellingham was confused about the release of the information, even thinking that his provision of the “indicative figures” of the June 2018 Figures did not reveal confidential information of the other two businesses. It was also the case that Mr Wallent did not press the supply of that information. At a later point, Mr Wallent asked about entire year figures and again did not press supply of this information as he indicated that his “reason for asking for the updated figures became less important as part of funding”. In terms of whether this factor would cause me to have sufficient doubt so as to disregard Mr Bellingham’s evidence, the fact that the contemporaneous documents all support what was said by Mr Bellingham is of much greater significance and so would not impact upon the findings I have made.
Between 21 September 2018 and 29 September 2018, Mr Wallent and Mr Bellingham exchanged a number of telephone calls. It was not disputed that during this time they discussed:
·Mr Bellingham’s desire to sell and focus on his other business “The Drover”;
·that Mr Bellingham expressed interest in leasing a berth on the Eco Noosa jetty;
·the condition of the Duffy boats and that they should be capable of running for at least six hours;
·that Mr Wallent had previously looked into Duffy boats;
·sunset cruises and their popularity;
·that Mr Bellingham thought that Noosa was a wonderful place to live and offered an amazing lifestyle;
·Mr Wallent’s workplace injury;
·Mr Wallent’s desire to find a business that offered a “health and family-oriented lifestyle” while also supporting his family; and
·Mr Wallent’s experience in the marine industry and Ms Hawkes’ experience in the hospitality industry.
On 30 September 2018, the following text messages were sent:
[At 11:56 AM, Mr Bellingham sent the following text message to Mr Wallent]
Hi Michael,
… Had a talk last night with my wife and also discussions with the other interested buyers. The offer the other couple have put to us is this :
Purchase price$330k
Not including the sups. $100k vendor finance . Therefore making it $230k up front and vendor finance of $100k.
However they cannot commit to a time as yet .
If this would make a difference to your position we are happy to offer you the same deal. As I said to you time is the main factor for us due to to other commitments with The Drover . Would also be happy to negotiate leasing of the Berth area for The Drover as well.
Let me know your thoughts.Cheers Shane
(errors in original)
[At 6:49 PM, Mr Wallent sent a reply]
Hi Shane,
Thanks for extending your existing offer to us. This would certainly make financing the deal easier for us and puts us in the position where we are likely to be able to obtain the funds.
Just a quick question, why are the sups not included?
Would you be willing to accept a contract subject to finance and viewing?
We are hoping to get over in the next week or so.
RegardsMichael
[At 8:12 PM Mr Bellingham responded]
We have aggreed to purchase the sup business from the business next to us on the sale of the business ( for $35k) however the other buyer did not want to be doing sup lessons or school groups of up to 20 per group . As that is the bulk of his hires. They felt for $35K they would rather put that money into the business and could buy a few sups later if needed.
But as he had been operating for 12+ months and had solid financials we just felt it helped with the overall package of the business .
And I agree with them so am happy not to include it .
Also I can discuss it more if or when you come over , but an opportunity has come up over the past few days giving us the chance to expand The Drover. If we choose to go with it we would be looking to lease the half of the jetty where we Berth the Drover now on a permanent basis . This will also have a huge impact on the jetty for attracting more clientele and customers , as well as be a constant rent for the new owners of the business .
As I said the jetty has so much potentional and is only going to grow with the increasing tourists coming to Noosa . So I want to not only see it grow but still want to be involved on the river with The Drover …
Noosa is just growing week by week, so when the new airport opens tourism is going to go off !Cheers Shane
(photographs omitted; errors in original)
The exchange of text messages on 30 September 2018 raised the topic of the amended offer. The purchase price was reduced to $330,000 with $100,000 vendor finance and “not including sups”. Mr Wallent asked, in a text at 6.49 pm, “Just a quick question, why are the sups not included?”.
By this stage, I have concluded that Mr Wallent must have known of the incorporation of the two businesses, Nauticycles Noosa and Noosa SUP.
As to that question regarding the “sups not [being] included”, Mr Bellingham responded indicating that Bellandra Holdings had agreed to purchase the Noosa SUP business for $35,000 and indicated the reasons why the other buyer did not want to acquire that business. Mr Bellingham continued: “But as he had been operating for 12+ months and had solid financials we just felt it helped with the overall package of the business”.
Clearly, Coastal Karts knew of the incorporation of Noosa SUP and, further, was told that Noosa SUP had “solid financials”, “had been operating for 12+ months” and that its inclusion helped “the overall package of the business”.
On 2 October 2018, at 10.37 pm, Mr Wallent sent an email to Mr Bellingham indicating:
After plenty of discussions, we are excited about the prospect of potentially moving to the Sunshine Coast and operating a business on Noosa River. Arahina and I have previously owned businesses, have plenty of tourism and hospitality experience which we hope to bring to the business and after working on luxury yachts for years, the idea of owning my own little luxury boat, is awesome.
We agree the SUPs are not really required at this moment, especially considering we have some other ideas we would like to investigate that may require some additional capital. On that note, we would be happy to work with your offer of $330k for the business, with $100k vendor finance, after a few details have been agreed on. Could you please let me know what terms for the finance you would like to offer?
A few other questions;
•Are there any permits, or licenses that need to be transferred over?
•Can you provide the contact details for the Landlord so that we can have a chat about the lease?
•Do you have a date that you want to be out of the business?
…
We are planning to come over to look at the business in the coming weeks, but would like to secure our finance before we come so that we can move to contract should everything be okay after the viewing. I’d actually like to be there before the school holidays finish and give you hand for a day if that’s ok? I have meetings tomorrow and Thursday regarding finance, I can’t see any problems, it’s just a matter of time as it involves an insurance settlement. Before we book flights, we would also appreciate some sort of assurance that we’re in the running and the business won’t be sold before we get there. It’s pretty difficult for us over here, we’re keen as but we’re on the opposite side of the country!
There was a further discussion between Mr Bellingham and Mr Wallent on 5 October 2018. Mr Bellingham recalled that:
(a)he “discussed the Noosa SUP business further and the income that related to the June 2018 Figures” that he had sent to him;
(b)he “also explained what would not be included as part of the [Equipment List he] had also previously sent” to Mr Wallent;
(c)he said to Mr Wallent then “that it would reduce the amount of income from the $150,000 by approximately $65,000”;
(d)he stated that “the Noosa SUP business was included as part of the financials as it made it a much better package not only financially but also to obtain finance and the Noosa SUP business had a solid 12 month’s figures”;
(e)in response, Mr Wallent stated that “removing the Noosa SUP business was not an issue for them and that they would rather put that capital into ideas they had of their own to build the business up”;
(f)Mr Wallent said “he would be purchasing his own stand-up paddle boards for the business anyway”;
(g)Mr Wallent said that he “had a pedal kart business concept of which he wanted to bring over to Noosa as he felt it would work well there, but had not worked in Western Australia because of the position it was located in”;
(h)Mr Wallent said that “he had new ideas for the business and that he would reconfigure the business and the direction to further enhance the Eco-friendly concept of it”;
(i)he also remembered explaining to Mr Wallent that “the reason [he] had made the offer to him was due to the vast amount of experience he had told me that he had in boats, as well as he was familiar with the Duffy Boats”;
(j)he told Mr Wallent that the “sale of the business was not just about the sale, but it was about someone buying it who could continue to grow the business”; and
(k)he told Mr Wallent “his experience made him someone [he] would like to have purchase the business”.
The expert evidence appears to conclude that the issues identified were inherent to the Duffy boats design and typically unidentifiable except by an expert. Mr Betts acknowledged that running the equipment at lower power (as would occur in circumstances where Mr Bellingham’s solution was in place) would manage the power consumption of the boat and additionally reduce the heat load of the equipment. It would not solve the underlying issues but would deal with the issues experienced.
Bellandra Holdings also submitted that any inspection which had occurred by Mr Betts or Mr Allison was well after the purchase date (and therefore did not speak to the condition of the Duffy boats at the time of purchase). I accept that submission. Of course, at that time, the limiting pins installed by Mr Bellingham were in place. Whilst the evidence did not address this, it seems likely that the overheating and battery charging problems would have become evident after the limiting pins had been removed.
Coastal Karts acknowledged that when Mr Wallent inspected the green Duffy boat, he did not inspect any of the electronical components or controller panels. Such inspections may have required more invasive inspections which were not carried out. Coastal Karts did not engage any person more qualified to undertake such inspections prior to entering into the Business Contract. None of problems claimed to exist was identified by Mr Wallent during the inspection.
I accept that the reports do not provide an insight as to the condition of the Duffy boats at the time of the sale in November 2018 as any inspection occurred well after settlement.
Mr Bellingham previously had an arrangement with a Mr Slaven, a semi-retiree, where Mr Slaven could moor his boat at the jetty for $125 per week. When Mr Wallent purchased the business, Mr Slaven continued to moor his boat at the jetty without payment in exchange for lending his car to Mr Wallent. This arrangement lasted for approximately a year. During cross-examination, Mr Wallent said that he was happy to forgo the income that he could have received for the jetty rental as it was only a small amount of income and that he needed a car. Bellandra Holdings calculated the income which could have been received for the jetty rental at $125 per week or $6,500 per year, which counsel for Bellandra Holdings noted was largely sufficient for Mr Wallent to fix the Duffy boats.
As to the conditions of the Duffy boats, I am not satisfied that the evidence supports a finding that, in the state in which they were sold, they were unreliable and not in good working order. In summary, my reasons are:
(a)Neither of the expert reports speak of the condition of the Duffy boats at the time of the sale.
(b)It seems that the problems ultimately identified with the Duffy boats related to overheating and flattening of the batteries and that Mr Bellingham had put in place a solution which Mr Betts said would limit the overheating and the excessive flattening.
(c)The work undertaken by the experts seems to have been more directed at changing the design of the Duffy boats than fixing aspects of poor condition.
(d)As to the solution put in place by Mr Bellingham, it seems that Mr Wallent unwittingly disabled this solution. Based on the expert evidence, that would have led to overheating and excessive battery discharge.
(e)The repairs had been described as extensive. However, the cost was only $2,560.55 for the “Lady Mary” and $4,354.15 for the “Lady Isabella”. This could have been covered by the business had the monies not been diverted to the provision of a family car.
(f)In terms of presentation, Bellandra Holdings had taken both Duffy boats out of the water to be cut, polished, waxed, antifouled and fully detailed. In fact, Mr Wallent acknowledged that from his inspection on social media, the condition of the equipment was one of the reasons he thought the business was “a good buy”.
In those circumstances, the comments made by Mr Bellingham that the Duffy boats were in good working order was justified. Of course, in relation to this aspect, the clause in the Business Contract made it clear that no warranty was given and Coastal Karts should have undertaken its own inspection, which was not done.
BROWNE V DUNN OBJECTIONS
Coastal Karts raised two objections against Bellandra Holdings’ submissions, relying upon the principles of Browne v Dunn (1894) 6 R. 67 (Browne v Dunn). The Browne v Dunn rule was summarised by Newton J in Bulstrode v Trimble [1970] VR 840 at 846:
A typical formulation is that set out in Cross on Evidence, 3rd ed, pp 211, 212, which is in the following terms: In the cross-examination of a witness “any matter upon which it is proposed to contradict the evidence-in-chief given by the witness must normally be put to him so that he may have an opportunity of explaining the contradiction, and failure to do this may be held to imply acceptance of the evidence-in-chief” (italics are mine).
(italics in original)
The Browne v Dunn rule is flexible and designed to promote and achieve procedural fairness (see Gleeson CJ and Heydon J at [18] in MWJ v The Queen (2005) 222 ALR 436; [2005] HCA 74). The rule is not absolute and matters which are “clearly at issue in the proceedings” do not need to be put to a witness, as Hill, O’Connor and Moore JJ held in Stern v National Australia Bank Ltd (2000) 171 ALR 192; [2000] FCA 294 at [42]:
The rule that in cross-examination it is necessary to put to an opponent’s witness the nature of the case proposed to be relied upon in contradiction of his or her evidence, referred to as the rule in Browne v Dunn, is, as the submissions suggest, essentially a rule of fairness. The rule is not however an absolute one. So it will not ordinarily be necessary to put to a party matters which are clearly at issue in the proceedings; see Thomas v van den Yssel (1976) 14 SASR 205 at 207, Phipson on Evidence, 14th edn, 1990 at [12-13] and cf Flower & Hart (a firm) v White Industries (Qld) Pty Ltd (1999) 87 FCR 134 at 148-9.
The first objection relates to Bellandra Holdings’ submission that Mr Wallent did not identify additional income of Nauticycles Noosa or Noosa SUP in his cash flow projections, Cash Flow Assumptions and Executive Summary, which would suggest that Mr Wallent considered any income figures to be inclusive of all three businesses. This suggestion was not put to Mr Wallent during cross-examination for him to refute or answer it.
Bellandra Holding submit that this was at the heart of their case and that Mr Wallent had every opportunity to respond to the allegation.
The second objection relates to the inspection of the Duffy boats during Mr Wallent’s visit to Eco Noosa. Bellandra Holdings suggested that Mr Wallent would have, or ought to have, taken notice of name of the green Duffy boat (being the “Lady Ann”). This was also not put to Mr Wallent during cross-examination for him to refute or provide an answer.
Bellandra Holdings submit that it was put to Mr Wallent, referring to the transcript:
[COUNSEL]: Mr Bellingham showed you a Green Duffy boat that he referred to as Lady Ann?
[MR WALLENT]: He showed me a Green Duffy boat. Yes.
Well, what do you disagree with in that sentence?
I disagree that he said that it was Lady Ann.
All right. I would suggest to you that he did and he was very clear that you were inspecting Lady Ann, and I would suggest that why you would recall that is because he pointed out the deckle on the back of the boat which had the words “Lady Ann” and the picture of a turtle under it. Do you recall seeing that?
No. I don’t.
He then explained to you that Lady Mary and Lady Isabella also had similar deckles with their names on them?
Well, that’s incorrect.
The Browne v Dunn rule is, of course, discretionary. With respect to the first objection, as is clear from the reasons, the conclusions I reached regarding the fact that the June 2018 Figures included income from the three businesses was based upon a consideration of the circumstances at the time the discussions took place. The information regarding the cash flow projections was regarded as consistent with the findings I had already made. As for the subject matter of the second objection, it was clearly put to Mr Wallent. There does not appear to be any reason to apply the Browne v Dunn rule with respect to the objections.
CROSS CLAIM
The cross claim alleged that Coastal Karts has only repaid the sum of $15,099.00 and has otherwise failed to repay the Principal Sum and applicable interest and, accordingly, is in breach of the terms of the Vendor Finance Agreement.
Coastal Karts contended that the Vendor Finance Agreement was validly rescinded and is therefore not required to pay Bellandra Holdings any further amounts under the Vendor Finance Agreement.
In written submissions, Coastal Karts noted that “[t]he cross claim filed by Bellandra Holdings for damages for breach of the Vendor Finance Agreement will turn on determination of [Coastal Karts’] claim”. That position is not contested by Bellandra Holdings, which submitted that “[Bellandra Holdings’] cross-claim should be found to be established, and orders made for [Coastal Karts] to pay the balance of the Vendor Finance amount to [Bellandra Holdings], together with applicable interest”.
In the circumstances where Coastal Karts has not been successful in its claim and has therefore not validly rescinded the Vendor Finance Agreement, Bellandra Holding is successful in its cross claim.
I am minded to make the following orders, but will hear from the parties whether further submissions are necessary in relation to the cross claim:
1.The first cross-respondent pay $89,003.95 to the cross-claimant, being the amount of Principal Sum and Interest payable under the Vendor Finance Agreement.
2.The first cross-respondent pay interest calculated at the rate of 5% per annum accruing monthly to the cross-claimant.
CONCLUSION
I will dismiss Coastal Karts Amended Originating Application filed on 18 October 2019. I will order that Coastal Karts pay Bellandra Holdings’ costs of the application, to be taxed if not agreed.
I certify that the preceding two hundred and seven (207) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Thomas. Associate:
Dated: 31 January 2024
SCHEDULE OF PARTIES
QUD 478 of 2019 Cross-Respondents
Second Cross-Respondent
MICHAEL PAUL WALLENT
Third Cross-Respondent
ARAHINA EUNICE HAWKES
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