Djaw Pty Ltd v Schmitz
[2002] QDC 168
•12 June 2002
DISTRICT COURT OF QUEENSLAND
CITATION: Djaw Pty Ltd v Schmitz & Ors [2002] QDC 168
PARTIES: DJAW PTY LTD (ACN 086 936 192)
Plaintiff
and
EDGAR SCHMITZ AND DAWN PATRICIA SCHMITZ
First Defendants
and
ACCOUNTANTS ACROSS AUSTRALIA PTY LTD (ACN 069 521 955)
Second Defendants
and
MARK THEIL
Third DefendantFILE NO/S: 853 / 1999
DIVISION: Civil Jurisdiction
PROCEEDING: Claim
ORIGINATING COURT: Southport DELIVERED ON:
12 June 2002
DELIVERED AT: Southport
HEARING DATE: 12 & 13 September 2001
JUDGE: Judge Alan Wilson SC
ORDER: Judgment for the plaintiff for $120,404.25, plus interest
CATCHWORDS: CONTRACT – FRAUDULENT MISREPRESENTATION
Vendors of business partially concealed business records shown to purchasers – concealment affected trading figures to vendors’ advantage – findings of fraud – no contributory negligence by purchasers
Cases considered:
BP Refinery (Western Port) v Hastings Shire Council
Derry v Peek (1889) 14 App Cas 33
Rejfek v McElroy (1965) 112 CLR 517, at 521-22
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449, at 449-50
Leslie Leithead v Barber (1965) SR (NSW) 172
Jones v Dimbell (1981) VR 199
Commercial Banking Company of Sydney v R H Brown & Co (1972) 126 CLR 337, at 346, 350
John McGrath Motors (Canberra) Pty Ltd v Applebee (1963) 110 CLR 656
Karkowski v Eurolynx Properties Pty Ltd (1995) 130 ALR 1
Gould v Vaggelas (1985) 157 CLR 215, at 236
Demetrios v Gikas Dry Cleaning Industries Pty Ltd (1991) 22 NSWLR 561
Commercial Banking Co of Sydney Ltd v R H Brown & Co (1971) 126 CLR 337 per Menzies J, at 344
S Pearson & Son Ltd v Dublin Corporation (1907) AC 351, at 354 per Lord Loreburn LC
Henjo Investments Pty Ltd v Collins (Marrickville) Pty Ltd (1987-88) 79 ALR 83, at 98-99
Petera Pty Ltd v EAJ Pty Ltd (1985) ATPR 40-605 per Wilcox J, at 46, 887
Terry “Disclaimers and Deceptive Conduct” (1986) Australian Business Law Review p 478, at 486
Nocton v Ashburton (1914) AC 932, at 962
Redgrave v Hurd (1881) 20 Ch B 1
Fry v Chase, unreported 20 September 1991, NSW Supreme Court, 4183/82
Scarborough v Klich (2001) NSWCA 436 (6 December 2001) at
p 21
Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465
Dorotea Pty Ltd v Christos Doufos Nominees Pty Ltd (1986) 2 Qd R 91
Carman Construction Ltd v Canadian Pacific (1982) 136 DLR (3d) 193
Kizbeau Pty Ltd v W G & V Pty Ltd (1995) 131 ALR 363
South Australia v Johnson (1982) 42 ALR 161 at 169-70
Gates v The City Mutual Life Assurance Society Ltd (1985) 160 CLR 1
Esso Petroleum Co Limited v Mardon (1976) QB 801 at 820-21, 828-29
Toteff v Antonas (1952) 87 CLR 647 at 650
Archer v Brown (1985) QB 401
COUNSEL: Mr A P Collins for the plaintiff
Edgar Schmitz, one of the first defendants, in personSOLICITORS: Messrs Gall Standfield & Smith for the plaintiff
First defendants self-represented
This action arises from the sale by the first defendants to the plaintiff of a newsagency business at Southport under a contract in writing dated 7 April 1999. The plaintiff claims against the first defendants, arising from that contract, damages for deceit and/or negligent misrepresentation and/or breach of contract. The action against the second and third defendants was discontinued by notice filed 7 March 2001. At trial, the plaintiff was represented by Mr Collins of counsel. The first defendants had solicitors acting for them until 16 March 2001 but were not legally represented after that time, or at trial. Mr Edgar Schmitz conducted the trial for himself and the other first defendant (his wife, who was present in Court for some of the hearing). Initially, the first defendants’ solicitors filed a defence on their behalves, on 2 November 1999. On 18 December 2000 the plaintiff filed a further amended statement of claim, to which the first defendants pleaded by an amended defence, filed by them on their own behalves on 24 July 2001.
Some relevant matters are admitted in those pleadings:
(a) the plaintiff was a duly incorporated company from 30 March 1999;
(b) its directors were Doawain Dike and Wanda Dike;
(c) by a contract in writing entered into in or about March 1999 the first defendants as vendors sold the plaintiff as purchaser a casket agent and sub-newsagency located at 77C Scarborough Street, Southport known as “Lotsa Luck Casket and Newsagency”;
(d) it was a term of that contract:
‘8.1 The vendor states and assures the purchaser that except as otherwise disclosed in this contract:
(i) the trading figures and other financial data relating to the business particulars of which are set out in any schedule, annexure or appendix to this contract are true and correct in every particular.’
(e) at all material times Hobart Investments Pty Ltd trading as ‘Ray White Southport‘ was the agent of the first defendants for the purpose of marketing and selling that business;
(f) in or about March 1999 prior to the execution of the contract the first defendants by their agent Ray White Southport represented to the plaintiff in respect of the business that:
(i) the gross profit was $109,467
(ii) the net profit to owner was $53,597
(iii) the goodwill in the business was $85,000
(g) those representations were made at the office of Ray White Southport when its servant or agent Mr Andrew Mackie showed the plaintiff, by its agents Mr and Mrs Dike, a ‘business profile’ which incorporated profit and loss statements and represented those documents were accurate;
(h) the first defendants at all material times knew that agent had possession of those documents and would utilise them for the purpose of conveying to prospective purchasers the financial position of the business.
Before the trial commenced the plaintiff’s solicitors sent the defendants a notice to admit facts under UCPR r 189. It was apparently delivered to the first defendants under cover of a letter 21 August 2001. The first defendants did not respond to it within 14 days (r 189(2)) although in a letter sent to the Court dated 5 September 2001 Mr Schmitz referred to it, stating: “This is dealt with in my Amended Defence and will be referred to at trial”. In light of the first defendants’ apparent failure to appreciate the effect of rule 189(2) Mr Collins adduced evidence to prove the matters set out in the notice independently, and the findings of fact I have made are based upon that evidence. Technically, however, the first defendants’ failure to respond to the notice means they are deemed to have made a number of relevant admissions concerning some of the documents which form part of the business profile and, in particular, profit and loss statements for the business in the periods July 1997-June 1998, and July 1998-December 1998. The effect of those admissions is very damaging to the first defendants, and can be summarised:
(a) the profit and loss statements for both periods contained false entries which had the effect of significantly overstating the gross and net income of the business, and understating its expenses;
(b) they were intentionally manufactured by the first defendants;
(c) they were manufactured by the first defendants with the intention that they be relied upon by potential purchasers, who would then be induced to buy the business;
(d) that one document for each period, purporting to show income from the sale of Gold Lotto, Powerball, Pools and Casket tickets had been partly covered over and photocopied.
The last documents lie at the heart of the plaintiff’s action in deceit. (Adopting the term used by the parties, they are referred to generally as the “Golden Casket” documents). The plaintiff alleges it only became aware the documents had been partly concealed during the disclosure process in its original action for damages for negligent misrepresentation and/or breach of contract when, it says, it found the entire documents and then amended the claim to include the action in fraud.
Events Before Contract
Mr and Mrs Dike gave evidence for the plaintiff. They said, and I accept, that in early March 1999 they were looking to acquire a business. Mrs Dike had recently retired from Telstra, and Mr Dike was an invalid pensioner. He had previously owned two coffee shops in Rockhampton but otherwise had little business experience. After seeing advertisements in local newspapers they approached Ray White business brokers at Southport and met an agent there, Mr Andrew Mackie. Ray White had produced the business profile which incorporated the documents mentioned earlier, supplied by the first defendants: the profit and loss statements, and the financial data from the Golden Casket office. The first statement, for the year ended 30 June 1999 showed total income of $631,438.85; income from the Golden Casket of $277,789.00; Golden Casket prize payouts of $82,241.30; a wages component of $13,720.00, owners drawings of $44,200.00, and total annual expenses of $622,041.74; and, a net profit for that year of $9,397.11. The profit and loss statement for the half year ended 31 December 1998 showed total income of $281,241.40; a wages component of $7,170.00, owners drawings of $24,050.00, and total expenses of $277,194.93; and, a net profit for that half year of $4,046.47.
Mr and Mrs Dike executed a contract in March 1999 showing them as purchasers but after receiving accounting advice entered into a new contract, with the first defendants’ consent, for purchase by an entity which would conduct the business – the company which is the plaintiff.
Mr Dike said, and I accept, that on the second occasion he and his wife visited the agents (on 15 March 1999) he spoke briefly with the accountants who were the original second defendants and was told the information provided to them by the first defendants correlated with the information in the profit and loss statements. Mrs Dike gave evidence she and her husband attempted to correlate the figures in the Golden Casket documents with the profit and loss statements (all within the business profile) and were able to do so. Mr Dike also says, and I again accept, that after the contract was signed but before settlement he and his wife met with Mr Schmitz to discuss administrative matters in respect of the change over of the business. At that meeting Mr Dike spoke words to Mr Schmitz asking him to confirm the profitability of the business and Mr Schmitz replied with words to the effect the figures set out in the profit and loss statements were accurate, the business was a good one, and the purchaser would make a good profit.
Each says, and I accept, that they were persuaded by the business profile and these enquiries to rely upon the figures in the profile, and did so.
The Contract
Under the contract of 7 April 1999 the plaintiff paid $86,000.00 for the business, plus $12,883.80 for stock, at value. The contract contained three clauses touching pre-contractual negotiations and representations, and the business profile. The first was clause 8, set out above. The second and third appear in special conditions nos. 2 and 6:
“2. The Purchaser acknowledge that he has not relied on any representations by the vendor, the vendor’s agent or any other person or corporation on or before entering into the contract other than as set out herein and that the conditions and stipulations herein constitute the only agreement between the purchaser and the vendor.
…
6. This contract is subject to and conditional upon the Purchasers and the Purchaser’s Accountant being satisfied with the books and records of the business within 7 days from the date hereof failing which this contract shall be at an end and all deposit monies refunded in full without any deduction whatsoever to the Purchaser.”
A preliminary question arose as to whether or not the business profile was a “schedule, annexure or appendix” to the contract. Mrs Dike says she and her husband collected the contract and the profile from Mr Mackie, and they took both to their solicitor’s office and signed the contract there. Mr Schmitz gave evidence, and was cross-examined by Mr Collins and, when asked if the contract and the business profile went to his solicitors said, “I presume it did. I don't know.” He did not deny the profile could have been present when he signed the contract, at his solicitors. Neither of the solicitors was called.
While I found Mrs Dike to be an honest, and careful witness and accept her evidence, it is simply impossible to determine what happened to the business profile after she and her husband signed the contract. Certainly, it is not signed by any of the parties, nor marked in any way suggesting it is an annexure to the contract. Its mere presence with the contract is not I think, enough to show it was an integral part of the parties’ written agreement, sufficient to overcome the parole evidence rule. The fact it was not incorporated by, for example, execution gives rise to a number of possible inferences, including a deliberate failure of incorporation because the first defendants were unwilling to provide such a warranty.
Clause 8 is included in the REIQ standard conditions and only, by its terms, activated by express inclusion of figures in a schedule in the contract. There is no compelling argument that the inclusion of the business profile should be implied, so as to give meaning and effect to clause 8.1. Under the five tests suggested by the Privy Council for implication of terms in BP Refinery (Western Port) v Hastings Shire Council,[1] a term must be necessary to give business efficacy to the contract (but a term will not be implied if the contract is effective without it). The attempt to imply a term that, for example, the business profile was to be included as a schedule does not meet this test because the contract remains effective without clause 8.1 which becomes, simply, redundant. It is also to be noted, for the sake of completeness, that neither the pleadings nor the notice to admit evinced any relevant admission about this matter from the first defendants.
[1](1977) 180 CLR 266
Events Subsequent to the Contract
Within a month of taking over the newsagency Mr and Mrs Dike formed the view the business was not successful, but were unable to ascertain where the problems might lie. They let a staff member go and, as they said and I accept, worked hard to attempt to maintain and improve profits. Both began to suffer some health problems. They decided to place the business on the market and contacted a Mr Axford, a real estate agent with some expertise in businesses, and their values. They showed him the profit and loss statements supplied by the first defendants and, having viewed them, he said the business had a value of about $110,000. Then he reviewed the profit and loss statements again, and told the Dikes the figures were misleading and that the commission from Golden Casket had been included twice. Mr Axford gave evidence of these matters, and that as a consequence he formed the view the business was only showing a net profit of around $25,000 p.a. and would, therefore, be virtually impossible to sell to anyone save a person wishing to purchase the lease. From his analysis, the first profit and loss statement was $31,369 higher than the correct figure, an inaccuracy which arose because net commission had been included both as a discrete value, and to establish a balance between sales, and the cost of sales of casket tickets, etc.
The plaintiff sought legal advice and then commenced an action against the first defendants alleging negligent misrepresentation and/or breach of warranty. In the disclosure process access was obtained to documents which included some in the possession of the first defendants, being records provided to them by the Golden Casket company. As a consequence the pleading was amended in November 2000 to include the action for deceit.
Nature of Alleged Deceit/Misrepresentations
As Mr Axford and an accountant called by the plaintiff, Mr Bauer explained (his report is Exhibit 3), the profit and loss statements contained misrepresentations as to both income, and expenditure. The statement to June 1998 shows a net income of $27,789.00 and, for the following half year, $12,134.99. Amounts have, however, been wrongly included as income or not properly adjusted in expenditure components. The effect, for the year 1997/98 is that the statement overstates income by $31,489.11; and, for the following half year $24,184.62.
The two documents mentioned earlier, being statements from the Golden Casket in respect of lotto and other income and expenditure record an amount as payable to the business but part of each has been covered up, as became apparent when they were compared with the originals, obtained on disclosure. On the documents included in the business profile the amount represented for payouts to the year ended 30 June 1998 is only $82,241.30, when the true figure revealed by the complete document is $113,976.45, a difference of $31,735.15. For the six months ending 31 December 1998 the difference between the figures shown, and the actual payout is $24,465.10. Assuming all other entries in the profit and loss statement to June 1998 are correct, then, income has been overstated by $31,489.11, expenditure has been understated by $31,735.15 and the total error is $63,224.26. In the result, the net profit shown on the statement for that period should, in truth, be a loss of $53,827.15. The same exercise for the subsequent six months shows the net profit in the statement for that period should, correctly, be a loss of $44,603.45.
Claim in Deceit
The plaintiff says the partial concealment of the documents from the Golden Casket company was deliberate, and designed to misrepresent the expenses and the net profit of the business. The plaintiff must prove, of course, that the representation was made knowingly, and that the first defendants knew it to be false, or recklessly disregarded its truth or falsity.[2] The standard of proof is strict, because the accusation is a very serious one.[3]
[2]Derry v Peek (1889) 14 App Cas 33
[3] Rejfek v McElroy (1965) 112 CLR 517, at 521-22; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449, at 449-50
Some questions asked of the plaintiff’s witnesses at trial by the male first defendant may have been directed towards a suggestion that the representations were in fact made to Mr and Mrs Dike and became, somehow, inoperative when the plaintiff company was incorporated and the second contract signed.[4] This is not, however, an impediment to the plaintiff maintaining an action for fraud, if there was an intention the company act on the misrepresentation.[5] The representations were continuing, in the sense that the business profile was always before both Mr and Mrs Dike, for themselves when they signed the first contract and as directors of and agents for the plaintiff company after it was incorporated and, the plaintiff says, intended to be relied upon up to the date of that contract, 7 April 1999.[6]
[4]Transcript p 34, l 20
[5]Leslie Leithead v Barber (1965) SR (NSW) 172
[6] Jones v Dimbell (1981) VR 199; Commercial Banking Company of Sydney v R H Brown & Co (1972) 126 CLR 337, at 346, 350
The plaintiff asserts the following matters show an intentional and fraudulent misrepresentation,[7] with the intention of inducing the plaintiff to enter the contract:
[7]John McGrath Motors (Canberra) Pty Ltd v Applebee (1963) 110 CLR 656
(a) The profit and loss statements were represented to be genuine documents;
(b) They were prepared by the first defendants or one of them;
(c) They contained entries for which there was independent date in the first defendants’ possession to corroborate them (i.e. the documents from Golden Casket);
(d) They purported to convey a representation that information in the profit and loss statement was verified by their inclusion in the business profile (but partly concealed);
(e) Golden Casket information was provided in the business profile but the entries which would have proved their falseness in the profit and loss statement had been deliberately covered over by some person;
(f) The first defendants had the correct documents but did not include them;
(g) They also failed to provide, despite numerous requests, actual taxation returns for the relevant years;
(h) They do not now produce any evidence to verify the accuracy of the contents of the profit and loss statements;
(i) They knew or would certainly upon reasonable investigation have known that the entries in the profit and loss statement were false;
(j) The conversation between Mr Dike and Mr Schmitz before the final paying of the purchase price is consonant only with reliance.
(Correspondence tendered on the plaintiff’s behalf, and the evidence of Mrs Dike establish requests and demands were made for taxation returns for the relevant years but they have never been produced, nor disclosed.)
In their defence the defendants plead the truth and accuracy of the documents in the business profile. During the plaintiff’s opening Mr Schmitz admitted that he had prepared the profit and loss statements upon which the business profile was based, and gave them to the real estate agent.[8] In evidence, he effectively admitted he had covered over the “missing” parts of the Golden Casket documents.[9] He never offered a plausible explanation for the difference between the figures in the business profile, and those apparent after disclosure of the complete Golden Casket documents. He said, variously:
[8]Transcript p 5; and, p 55 ll 50-55
[9]Transcript p 125, ll 16-45
“…I don’t know why the payouts differed from the document, I can’t explain it to you.”[10]
[10]Transcript p 99, ll 43-44
“I did not try to deceive anyone, and if I made a mistake it was an honest mistake but it was seeable.”[11]
[11] Transcript p 119, ll 10-12
“So all I say to the Court is that whatever that I did not wilfully or whatever other expression there may be in the legal terms do anything wrong presenting this business. I feel – I know, my conscience is quite clear that I did not do anything wrong and I should not be blamed for the fact that the business did not produce for them.”[12]
It is clear, and I find that the Golden Casket documents contained in the business profile were partially and deliberately concealed by the first defendants or one of them when copied for inclusion in the business profile. The effect was, I find, to warp the profit and loss statements in the profile in a way which significantly misstated, to the first defendants’ advantage, the income and expenses of the business, with the added consequence that highly inaccurate net profit figures resulted.
[12] Transcript p 121, ll 6-11; and, p 150
On any view this is a clear example of deceit as the only reasonable inference open on the evidence.[13] I do not hesitate to make findings in terms of para 19 (a)-(j) set out earlier. While it is unnecessary for the plaintiff to prove the first defendants intended to cause harm to the plaintiff, or that it should necessarily act on the misrepresentation I think it is the case that again, by strong inference, no other conclusion is reasonably open.[14]
[13]cf Karkowski v Eurolynx Properties Pty Ltd (1995) 130 ALR 1
[14]Derry v Peek (supra); Karkowski v Eurolynx Properties Pty Ltd (supra)
The evidence of Mrs Dike, and her husband (who also impressed me as an honest, reliable witness) is that they entered into the contract as a consequence of and in reliance on the misrepresentations, and suffered loss. This is something they must prove,[15] but the conclusion is compelling. The effect of the first defendants’ distorted figures is to conceal the fact the business was not profitable and, indeed, present it as a profitable one. It must be a fundamental truism that potential purchasers of businesses rely upon profitability to a much greater extent than any other factor. The first defendants did not suggest any other inducement, and none was apparent from the plaintiff’s evidence and, on any view, it is reasonable to infer that the misrepresentations played, at the very least, some part in contributing to the formation of the contract.[16]
[15]Gould v Vaggelas (1985) 157 CLR 215, at 236
[16]Gould v Vaggelas (supra); Demetrios v Gikas Dry Cleaning Industries Pty Ltd (1991) 22 NSWLR 561
There is some evidence suggesting Mr Schmitz may simply have blundered: for example, the disclosure of the true Golden Casket documents, from which it might be inferred he was confused, rather than deliberately deceitful. A reckless disregard for the truth or falsity of a representation may, however, also be an element of the tort[17] and Mr Schmitz’s conduct is clearly able to be categorised in that way.
[17]Derry v Peek (supra)
I find the documents contained in the business profile constitute a fraudulent misrepresentation entitling the plaintiff, on proof of loss, to damages.
The “exclusion” clause in the contract, special condition no. 2, does not avail the first defendants in the face of a finding of fraud.[18] At trial, Mr Schmitz also argued[19] that he, in effect, relied upon the plaintiff to conduct its own “due diligence” and that is why special condition no. 6 was inserted. He also claimed he had complete copies of the Golden Casket documents at a pre-contract meeting with the Dikes, but Mrs Dike denied this. I did not find Mr Schmitz an impressive or credible witness, and prefer Mrs Dike’s version. In effect, this was a plea by the defendants of contributory negligence. In an action based on the tort of deceit, an allegation that the plaintiff’s conduct contributed to loss must be considered as an issue relating to causation; and, the question is whether or not the plaintiff’s failure to take reasonable care (here, by having the documents checked more carefully by its own accountants) was induced by the fraudulent misrepresentation or, instead, is an intervening causal element. The authorities are against the proposition that contributory negligence may be raised in an action based on deceit.[20] As Kearney J said in Fry v Chase, unreported:[21]
[18] Commercial Banking Co of Sydney Ltd v R H Brown & Co (1971) 126 CLR 337 per Menzies J, at 344; S Pearson & Son Ltd v Dublin Corporation (1907) AC 351, at 354 per Lord Loreburn LC; and Scarborough v Klich (2001) NSWCA 436 (6 December 2001) at p 21
[19] Transcript pp 118-121; Henjo Investments Pty Ltd v Collins (Marrickville) Pty Ltd (1987-88) 79 ALR 83, at 98-99; Petera Pty Ltd v EAJ Pty Ltd (1985) ATPR 40-605 per Wilcox J, at 46, 887; and, see Terry “Disclaimers and Deceptive Conduct” (1986) Australian Business Law Review p 478, at 486
[20]Nocton v Ashburton (1914) AC 932, at 962; Redgrave v Hurd (1881) 20 Ch B 1
[21]20 September 1991, NSW Supreme Court, 4183/82
“…As to this defence it is inherently unavailable in the case of deceit on the basis that it does not lie in the mouth of the fraudulent misrepresentor to complain of the misrepresentee taking him at his word.”
Those remarks are apposite here. In any event, Mr Dike contacted accountants. There is no evidence to suggest any other accountant, presented with the business profile, would have detected the misrepresentations. They were not noticed at first by the experienced agent and business valuer, Mr Axford; and it was only after disclosure, when the true Golden Casket documents were revealed, that the nature and extent of the fraud was apparent. The deceit is now so clear the defendants cannot meritoriously argue the plaintiff’s damages ought to be reduced in any way.
Negligent Misrepresentation
The problem for the plaintiff is that a claim based on negligent misrepresentation must overcome the effect of special condition no. 2. While it will not aid the first defendants in an action based on fraud, it may provide a defence to this head of claim.[22] My conclusions about fraud make it unnecessary to determine whether or not this claim is open but, in any event, I think it would be defeated by that special condition.
[22] Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465; Carman Construction Ltd v Canadian Pacific (1982) 136 DLR (3d) 193; Dorotea Pty Ltd v Christos Doufos Nominees Pty Ltd (1986) 2 Qd R 91
Breach of Contract
The earlier finding that the business profile was not incorporated into the contract means this plea, too, does not succeed. Under special condition no. 2 the plaintiff has acknowledged it has not relied on any representations “other than as set out herein”.
Damages
The measure of damages is that usually applied in tort, i.e. the difference between the price paid for the business and its true value, together with consequential losses associated with its acquisition.[23] Courts have been prepared to award something more than the strict difference between the valuations, extending to losses which are reasonably foreseeable as flowing from the deceit.[24] The damages must not be too remote.[25] Mr Axford said the business was valueless but, ultimately, the plaintiff was able to find a purchaser for $30,000 and its counsel, Mr Collins, properly conceded that may be the true value at the time of purchase. The plaintiff paid $86,000 for that business. It incurred expenses on the purchase, proved at $2,322.70 for stamp duty, and $1,192.35 for legal fees. At the time it was sold, further legal fees of $550.00 were incurred. The plaintiff also claims that, at the time of sale it remained liable to trade creditors in the sum of $8,330.00 and was indebted to Mr and Mrs Dike for loans each had made to sustain it, in separate sums: for Mr Dike $22,911.46, and for Mrs Dike $27,097.74. These figures were the subject of evidence from an accountant, Mr Richardson, which I accept.
[23]Gould v Vaggelas (supra); Kizbeau Pty Ltd v W G & V Pty Ltd (1995) 131 ALR 363
[24] Henjo Investments Pty Ltd v Collins (Marrickville) (supra); South Australia v Johnson (1982) 42 ALR 161 at 169-70
[25]Gates v The City Mutual Life Assurance Society Ltd (1985) 160 CLR 1
No attempt was made to adduce evidence showing some other basis for damages, e.g. that the plaintiff might have entered into some different venture and obtained a profit,[26] or some different investment.[27] Accordingly, it is appropriate to adopt the traditional formula described by Dixon J in Toteff v Antonas.[28]Here, the plaintiff’s evidence shows it has been able to sustain a small profit, but it was left with liabilities as a consequence of maintaining the business. In addition to damages based upon the difference between values at the time of purchase, the plaintiff is also entitled to damages for losses which are the immediate result of the defendants’ fraud, and any consequential losses not rendered too remote by the plaintiff’s conduct. It can encompass losses incurred in carrying on the business flowing directly from the defendants’ fraud and any expenses reasonably and properly incurred, including bank interest on any money borrowed as a result of the deceit.[29]
[26]cf Esso Petroleum Co Limited v Mardon (1976) QB 801 at 820-21, 828-29
[27]Gates v City Mutual Life Assurance (supra) at 13
[28](1952) 87 CLR 647 at 650
[29]Archer v Brown (1985) QB 401
The defendants also attempted to argue the plaintiff’s business losses arose because of their ill-health or poor conduct of the business. Mr and Mrs Dike said, and I accept, they worked hard and did their best and I am not persuaded their conduct caused, or exacerbated, these losses.
Each of the heads of damage set out above and claimed by the plaintiff seem to me to fall within the ambit of these authorities and I find the plaintiff is entitled to the following damages:
(a)
Difference in value between purchase price, and actual value of business at the time
$56,000.00
(b) Costs of purchase (stamp duty and legal fees) 3,515.05 (c) Costs of sale (legal fees and commission) 2,550.00 (d) Plaintiff’s liabilities after sale of business (trade creditors, and loans to its male and female directors 58,339.20
__________
TOTAL:
$120,404.25
The plaintiff is entitled to interest on items (a) and (b) from the date of settlement of the original contract (4 May
20011999) and, on items (c) and (d) from the date of completion of the sale, which was 30 June 2000. The first defendants made no submissions about interest at the trial and I invite submissions on that issue, and costs.
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