Ferguson v Swevenings Pty Ltd
[2011] FCA 1348
•25 November 2011
FEDERAL COURT OF AUSTRALIA
Ferguson v Swevenings Pty Ltd [2011] FCA 1348
Citation: Ferguson v Swevenings Pty Ltd [2011] FCA 1348 Appeal from: Swevenings Pty Ltd v Ferguson Consolidated Holdings Pty Ltd [2010] FMCA 63 Parties: ERIC JOHN FERGUSON v SWEVENINGS PTY LTD (ACN 113 531 007) File number: WAD 59 of 2010 Judge: SIOPIS J Date of judgment: 25 November 2011 Catchwords: TRADE PRACTICES – appeal from a decision of the Federal Magistrates Court – sale of business – whether the appellant was knowingly concerned in the contravening conduct of the company of which he was a director - whether apportionment of liability under s 87CD of the Trade Practices Act 1974 (Cth) available – assessment of trading loss. Legislation: Trade Practices Act 1974 (Cth) ss 51AD, 52, 75B, 87CB(1), 87CD
Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth) reg 3
Federal Court Rules O 52 r 6Cases cited: Gould v Vaggelas (1985) 157 CLR 215
MGICA v Kenny & Good Pty Ltd (1996) 140 ALR 313Date of hearing: 18 July 2011 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 103 Counsel for the Appellant: The Appellant appeared in person. Counsel for the Respondent: Mr J O Hosgood Solicitor for the Respondent: MacKinlays Solicitors
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 59 of 2010
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
BETWEEN: ERIC JOHN FERGUSON
AppellantAND: SWEVENINGS PTY LTD (ACN 113 531 007)
Respondent
JUDGE:
SIOPIS J
DATE OF ORDER:
25 NOVEMBER 2011
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1.The appeal is allowed in part.
2.Order 2 of the orders of the Federal Magistrate made on 18 June 2010, is varied, to substitute the sum of $131,678 for the sum of $145,842.
3.The appeal is otherwise dismissed.
4.The appellant is to pay the respondent’s costs of the appeal.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 59 of 2010
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
BETWEEN: ERIC JOHN FERGUSON
AppellantAND: SWEVENINGS PTY LTD (ACN 113 531 007)
Respondent
JUDGE:
SIOPIS J
DATE:
25 NOVEMBER 2011
PLACE:
PERTH
REASONS FOR JUDGMENT
In about January 2005, a company, Ferguson Consolidated Holdings Pty Ltd (Ferguson Consolidated), carried on business selling imported furniture from retail stores under the name of “Woodstock Furniture”. One of these retail stores was located in Midland, a suburb of Perth, and traded under the name of “Woodstock Furniture”. Ferguson Consolidated also licensed other persons to sell the imported furniture under the name of “Woodstock Furniture”. The directors of Ferguson Consolidated were, at the material time, Mr Eric John Ferguson and his wife, Mrs Elaine Ferguson.
In February 2005, Ferguson Consolidated engaged a business broker, Kent Business Brokers, to advertise the Midland business for sale. Following discussions between Mr Ferguson, on behalf of Ferguson Consolidated, and Dr Peter Roguszka and his wife, Mrs Dianne Roguszka, the directors of the respondent, Swevenings Pty Ltd, Ferguson Consolidated entered into a contract for the sale of the Midland business to the respondent. The parties also entered into a contract whereby Ferguson Consolidated granted the respondent an exclusive licence to operate the “Woodstock Furniture” business selling the imported furniture from premises in the Perth suburb of Cockburn.
A consideration of $175,000 was agreed in the contract for the purchase of the Midland business. It was attributed in the following manner: goodwill $120,000, plant and equipment $5,000, and stock at valuation, estimated to be $50,000. The parties agreed that, of the $120,000 which was allocated to goodwill, $20,000 would be for what the parties described at trial, as the “Midland licence” to conduct the Midland business. The parties agreed that the respondent would pay Ferguson Consolidated the sum of $20,000 for the Cockburn licence.
Settlement of the contract for the sale of the Midland business and the Cockburn licence occurred on 15 April 2005. On that date, the parties executed the “Midland licence”, to permit the respondent to carry on business from the Midland premises under the name of “Woodstock Furniture”. This licence agreement set out the terms under which the respondent, as licensee, was to trade. The licence agreement provided that all products offered for sale by the respondent were to be “approved products” supplied by Ferguson Consolidated; or up to 10% from an alternative supplier, with the prior written consent of Ferguson Consolidated. The licence agreement also provided that the respondent was to pay Ferguson Consolidated for all stock, either prior to delivery, or in accordance with credit terms that may be agreed. The payment would comprise the cost of the goods, plus a 10% payment for Ferguson Consolidated’s costs.
As it transpired, the respondent was not able to trade from the premises in Cockburn as provided for in the Cockburn licence agreement. In October 2005, after this became apparent, the respondent and Ferguson Consolidated agreed to transfer the licensed location from Cockburn to Rockingham. Thereafter, the respondent conducted a “Woodstock Furniture” business from stores located in Midland and Rockingham respectively. The fact that the respondent was unable to trade from the premises in Cockburn as contracted for, was the subject of complaint by the respondent in the proceeding. The respondent contended that it only agreed to the transfer of the licensed location to Rockingham in order to mitigate its loss.
On or about 27 October 2005, the respondent and Ferguson Consolidated entered into two separate agreements referred to as the “collateral agreements”, which contained the licence terms in respect of the Rockingham location and a revised Midland location.
The respondent’s business venture as a “Woodstock Furniture” trader, was not successful. One of the respondent’s major causes for complaint was the lack of available stock. The respondent incurred trading losses at both the Midland and Rockingham stores.
In August 2006, the respondent commenced a proceeding against Ferguson Consolidated and Mr Ferguson. The respondent claimed that in its dealings with Dr and Mrs Roguszka, Ferguson Consolidated had engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth). The respondent contended that the contravening conduct comprised representations which had been made by Mr Ferguson, on behalf of Ferguson Consolidated, prior to the entry into, and settlement of, the contract for the purchase of the Midland business, including the Midland licence, and the Cockburn licence.
The respondent also alleged that Ferguson Consolidated had contravened s 51AD of the Trade Practices Act, by reason of having contravened cll 6, 10, 11(1) and 11(2) of the Franchising Code of Conduct - being an applicable industry code. This Code of Conduct is the Schedule to the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth).
The respondent also claimed that Mr Ferguson had been knowingly concerned in the contraventions by Ferguson Consolidated of s 52 of the Trade Practices Act, and was, therefore, liable for the loss and damage suffered by the respondent, by reason of s 75B of the Trade Practices Act. It was, also, claimed that Mr Ferguson contravened s 10 of the Fair Trading Act 1987 (WA).
The respondent claimed declarations and compensation in respect of the loss and damage said to have been caused by the contraventions of the Trade Practices Act.
Ferguson Consolidated filed a cross-claim in which it claimed that it had suffered loss and damage by reason of the respondent’s breach of the Midland licence, in that it failed to continue to order the imported furniture from Ferguson Consolidated after 8 November 2006; and also an amount in respect of furniture sold and delivered, but not paid for, by the respondent.
The Federal Magistrate found that Ferguson Consolidated had engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act and that Mr Ferguson had been knowingly concerned in those contraventions by Ferguson Consolidated. The Federal Magistrate also found that Ferguson Consolidated had contravened s 51AD of the Trade Practices Act. The Federal Magistrate awarded damages to the respondent.
The Federal Magistrate also upheld Ferguson Consolidated’s cross-claim and ordered that the respondent pay Ferguson Consolidated damages and the amount Ferguson Consolidated claimed for furniture sold and delivered.
Ferguson Consolidated and Mr Ferguson filed a notice of appeal against the decision of the Federal Magistrate. However, between the time of the filing of the notice of appeal, and the hearing of the appeal, Ferguson Consolidated was deregistered and was not reinstated. Accordingly, it was Mr Ferguson only who prosecuted the appeal.
THE CASE BEFORE THE FEDERAL MAGISTRATE
At the trial before the Federal Magistrate, Mr Ferguson, Dr Roguszka and Mrs Roguszka gave evidence. Further, each of the parties called an expert witness. The respondent called Mr Anthony Douglas-Brown, whereas Ferguson Consolidated and Mr Ferguson called Mr William Robinson.
The Federal Magistrate made strong credibility findings against Mr Ferguson. He observed that Mr Ferguson was a witness who was evasive and was prepared to endeavour to tailor his evidence to suit his case. The Federal Magistrate said that Mr Ferguson came across as a witness whose credibility was to be doubted; and whose credibility was significantly impugned in cross-examination generally. The Federal Magistrate went on to say that in the event of “any evidentiary differences” between Mr Ferguson and Dr and Mrs Roguszka, he preferred the evidence of the latter.
The Federal Magistrate found that Ferguson Consolidated had made five representations which were misleading or deceptive. These were described in the pleadings, and at the trial before the Federal Magistrate, as the profit and loss representation, the future trading representation, the trading stock representation, the containers representation and the Cockburn shopping centre representation.
The profit and loss representation comprised a written representation as to the trading figures of the Midland business during the period July 2004 to January 2005. The representation was made in a four page document, referred to at the trial as the “Midland figures”, which Mr Ferguson supplied to Mr Barry Pike of Kent Business Brokers. The Federal Magistrate characterised the document as a “rudimentary profit and loss statement for the Midland Business for the months from July 2004 to January 2005”. This document was given to Mrs Roguszka (who passed it to Dr Roguszka) by Mr Pike prior to the entry into the contract for the sale of the Midland business. The Federal Magistrate upheld the respondent’s contention that the figures contained in the document were erroneous, and that the profit recorded therein, was overstated. The Federal Magistrate found that by making that misrepresentation, Ferguson Consolidated had engaged in misleading or deceptive conduct.
As to the future trading representation, the respondent alleged that during a meeting with Dr and Mrs Roguszka on 28 February 2005, Mr Ferguson, acting on behalf of Ferguson Consolidated, referred to the Midland figures and said that Dr and Mrs Roguszka “could easily double them”. Mr Ferguson denied making the statement. However, the Federal Magistrate found that Mr Ferguson had, in fact, made that statement, and that the statement was misleading or deceptive, in that it was made without reasonable grounds.
The respondent also contended that at the meeting on 28 February 2005, Mr Ferguson had represented that, if the respondent purchased the Midland business, adequate stock for the trading requirements of the Midland business would be supplied as needed by Ferguson Consolidated or alternatively, by Mr Ferguson. This was referred to as the trading stock representation. The Federal Magistrate found that Mr Ferguson had made that representation and that the representation was misleading or deceptive on the basis that it was made without reasonable grounds.
As to the containers representation, the respondent alleged that in March 2005, there was a meeting between Mr Ferguson and Dr and Mrs Roguszka at Mr Ferguson’s office adjacent to his warehouse in Rockingham. The respondent alleged that at that meeting, Mr Ferguson represented to Dr and Mrs Roguszka, that he had already ordered three containers of trading stock from suppliers in Indonesia for the Midland business and the containers would arrive at Fremantle in a staggered timetable, such that the first container would arrive at the start of May 2005, the second container would arrive at the end of May 2005 and the third container would arrive in early June 2005. The Federal Magistrate found that, despite his denial, Mr Ferguson had made the representation and that the representation was misleading or deceptive. This was because the representation was false in that Mr Ferguson had not, in fact, placed the orders for the three containers of furniture which he said he had.
The Federal Magistrate also found that Mr Ferguson and Ferguson Consolidated had made the Cockburn shopping centre representation. In this regard, the respondent alleged that Mr Ferguson, on behalf of Ferguson Consolidated, had represented to Dr and Mrs Roguszka that a lease of shop premises from which to conduct business as a “Woodstock Furniture” licensee, would be available in the Cockburn shopping centre (which was then being constructed) in September 2005. Mr Ferguson denied having made a representation to that effect. However, the Federal Magistrate found that Mr Ferguson had made a representation to that effect and that the representation was misleading or deceptive because it was made without reasonable grounds.
The Federal Magistrate found that the respondent had relied upon each of the representations in order to enter into, and settle, each of the Midland business sale contract (including the Midland licence), and the Cockburn licence agreement. The Federal Magistrate found that each of the pleaded representations had been made by Ferguson Consolidated, and that Ferguson Consolidated had engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act, and that by reason of that conduct, the respondent had suffered loss and damage.
The Federal Magistrate, also, found that Mr Ferguson was liable in his personal capacity under s 75B of the Trade Practices Act as a person knowingly concerned in the contraventions of s 52 of the Trade Practices Act by Ferguson Consolidated.
Further, the Federal Magistrate held that Ferguson Consolidated was to be characterised as a “franchisor”, and the respondent to be characterised as a “franchisee”, for the purposes of the application of s 51AD of the Trade Practices Act. The Federal Magistrate went on to hold that Ferguson Consolidated had breached mandatory provisions of the Franchising Code of Conduct, by failing to provide Dr and Mrs Roguszka with a disclosure document and a copy of the Code, at least 14 days before the entry into the Midland business sale agreement (including the Midland licence), the Cockburn licence agreement and the collateral agreements. The Federal Magistrate found that, it followed that, Ferguson Consolidated had, also, breached cl 11(1) of the Code. That clause, provided that a franchisor must not enter into a franchise agreement until the franchisor had received from the franchisee or prospective franchisee, a written statement that the franchisee or prospective franchisee, had received, and had a reasonable opportunity to understand the disclosure document and the Code.
The Federal Magistrate went on to find that by reason of the breach of the Code by Ferguson Consolidated, the respondent had suffered loss and damage arising from having entered into the contract to purchase the Midland business and the Cockburn licence agreement.
The Federal Magistrate ordered that Ferguson Consolidated and Mr Ferguson pay the respondent damages in the sum of $145,842. One component of that amount, was an amount of $35,842 in respect of the trading losses incurred by the respondent in concluding the Midland business in the period 15 April 2005 to 27 October 2005. The Federal Magistrate did not make an award for trading losses incurred after 27 October 2005, because he concluded that there was a break in the causal connection between those losses and Ferguson Consolidated’s contravening conduct.
The Federal Magistrate rejected Mr Ferguson’s and Ferguson Consolidated’s claim that he should apportion liability between them pursuant to s 87CD of the Trade Practices Act.
As to its cross-claim, Ferguson Consolidated pleaded that, in breach of the Midland licence, on 8 November 2006, the respondent ceased to operate as a “Woodstock Furniture” licensee from the Midland store; and, thereafter, it failed to order the furniture from Ferguson Consolidated for the Midland store which it would otherwise have ordered. Ferguson Consolidated claimed that it had suffered loss and damage of not less than $16,933 per financial year from 8 November 2006, based on the income that it would have received in commissions from the sale of stock to the respondent “in respect of the operation of the Midland business from 8 November 2006”.
The Federal Magistrate awarded Ferguson Consolidated damages by reference to the profits that it would have made during the 42 day period from 8 November 2006. The Federal Magistrate found that damages should be assessed by reference to the reasonable period of notice to terminate the Midland licence to which Ferguson Consolidated would have been entitled. This was 42 days. The Federal Magistrate awarded damages in the sum of $1,948.38.
As already mentioned, the Federal Magistrate found that the respondent was indebted to Ferguson Consolidated in the sum of $57,718.72 for the failure to pay for stock which Ferguson Consolidated had supplied.
THE APPEAL
Mr Ferguson, who was self represented throughout the conduct of the appeal process, filed a notice of appeal which was not in conventional form, complaining of a number of aspects of the Federal Magistrate’s decision. Further, after a number of delays arising from unsuccessful attempts at having Mr Ferguson settle an appeal book index, the Court dispensed with the filing of an appeal book index and appeal books.
Mr Ferguson did file a written outline of submissions (which was prepared with the assistance of a lawyer). At para 13 of the written outline of submissions, Mr Ferguson succinctly identified the grounds of appeal on which he relied. Paragraph 13 reads as follows:
For the avoidance of all doubt, the Appellants contend that [the Federal Magistrate] erred in law in arriving at the Decision for the following reasons:
a.he held that there had been a Future Trading Representation, despite a lack of any clear evidence in this regard;
b.he held that there had been a Trading Stock Representation despite a lack of evidence in this regard;
c.he incorrectly allowed the evidence of Mr Anthony Douglas-Brown (“Mr Douglas-Brown”) to be admitted into evidence as expert evidence;
d.he incorrectly applied figures of 2.6 employees, rather than 2.3 employees, in calculating the costs of the employees of the Midland Business;
e.he incorrectly found that the First Appellant was jointly liable for the misrepresentations of the Second Appellant;
f.he failed to carry out an apportionment of liability to reflect the proportion of the damage and loss claimed; and
g.he incorrectly held that, by virtue of the Respondent’s failure to give notice of termination, the Respondent was only liable for damages for a period of 42 days. (Original emphasis.)
I now deal with each of the grounds of appeal.
The future trading representation
Under this ground of appeal, Mr Ferguson challenged the finding made by the Federal Magistrate that he had made the future trading representation at his meeting with Dr and Mrs Roguszka on 28 February 2005.
At the trial, Mr Ferguson denied that he had made a statement to Dr and Mrs Roguszka to the effect that they “could double” the Midland figures (para 64 of his affidavit of 14 April 2009). In his judgment, the Federal Magistrate accepted the evidence of Mrs Roguszka, and rejected the evidence of Mr Ferguson, and found that Mr Ferguson had made that statement.
On appeal, Mr Ferguson challenged this finding of the Federal Magistrate, on the basis that there was an inconsistency between the evidence of Mrs Roguszka and the evidence of Dr Roguszka as to what Mr Ferguson had said at the meeting. Mr Ferguson pointed out that whilst Mrs Roguszka had given evidence that he had said that they could “double” the Midland figures, Dr Roguszka had said that Mr Ferguson had said that they could “significant[ly] increase” the Midland figures.
Mr Ferguson made the same argument at trial and the Federal Magistrate found that whilst there was a difference in the evidence of Mrs Roguszka and Dr Roguszka on this issue, Dr Roguszka’s evidence was not inconsistent with his wife’s evidence. Further, the Federal Magistrate also pointed out that in light of the adverse view to which he had come in respect of Mr Ferguson’s credibility, he preferred the evidence of Dr and Mrs Roguszka to that of Mr Ferguson.
It was open to the Federal Magistrate to make the findings which he did. In particular, having made the credibility finding that he did in respect of Mr Ferguson’s evidence, it was open to him to reject Mr Ferguson’s evidence and to prefer the evidence of Mrs Roguszka. Further, the difference between the evidence of Dr and Mrs Roguszka was immaterial in the context of the finding the Federal Magistrate was required to make.
This ground of Mr Ferguson’s appeal is dismissed.
The trading stock representation
The second ground of appeal is that the Federal Magistrate erred by finding that Mr Ferguson had made the trading stock representation.
At the trial, there was evidence that Mr Ferguson had represented that if the respondent purchased the Midland business, adequate stock for the trading requirements of the Midland business would be supplied as needed by Ferguson Consolidated or by Mr Ferguson.
The Federal Magistrate found that the representation was made.
The Federal Magistrate found that Mr Ferguson effectively conceded in cross‑examination that he had made the trading stock representation. The Federal Magistrate referred specifically to the concession by Mr Ferguson in cross-examination, that he had omitted to tell Dr and Mrs Roguszka that there would be occasions when the warehouse would run out of either particular lines, or most of its stock, because it was something that would not have helped to sell the Midland business. The Federal Magistrate found that Mr Ferguson’s conduct was misleading.
In his written submissions, Mr Ferguson sought to challenge the findings of the Federal Magistrate by stating that all orders for stock placed by the respondent were filled by Ferguson Consolidated and, also, that the respondent did not order stock when stock was low and so contributed to the shortage of stock at Woodstock Midland. Further, Mr Ferguson also asserted in his submissions that he had ordered three containers of stock prior to his departure on a yachting trip in April 2005.
None of these assertions addresses the findings of the Federal Magistrate which are based on answers given by Mr Ferguson during the course of cross-examination.
It was open to the Federal Magistrate to make the findings that he did on the basis of Mr Ferguson’s evidence. Accordingly, this ground of appeal is dismissed.
Further, Mr Ferguson contended in his written submissions, that the Federal Magistrate had erred in finding that the trading stock representation was false or misleading or likely to mislead. In my view, there was no error in the Federal Magistrate’s decision. It was open to the Federal Magistrate to find that the omission by Mr Ferguson to tell Dr and Mrs Roguszka that there would be occasions when the warehouse would run out of either particular lines, or most of its stock, was misleading or deceptive conduct. The trading stock representation was a representation as to the future, and the finding made by the Federal Magistrate demonstrated that Mr Ferguson did not have reasonable grounds for making the representation.
The Federal Magistrate, also, found that Dr and Mrs Roguszka had relied upon the trading stock representation to enter into the agreement for the purchase of the Midland business.
Mr Ferguson in his written submissions, but not in his grounds of appeal, challenged this finding. The Federal Magistrate specifically found that Mr Ferguson knowingly omitted to advise Dr and Mrs Roguszka that there would be occasions when the warehouse would run out of stock, in order not to deter them from entering into the contract. In those circumstances, it was open to the Federal Magistrate to find that Dr and Mrs Roguszka relied upon the representation (Gould v Vaggelas (1985) 157 CLR 215 at 236; MGICA v Kenny & Good Pty Ltd (1996) 140 ALR 313 at 358).
Likewise, in his written submissions, but not in his grounds of appeal, Mr Ferguson challenged the finding of the Federal Magistrate that the respondent suffered loss and damage by reason of Ferguson Consolidated’s misleading or deceptive conduct. The Federal Magistrate found that this representation comprised one of several representations which caused Dr and Mrs Roguszka to enter into and settle the contract for the purchase of the Midland business which, in turn, caused the respondent to suffer loss and damage. This was a finding which was open to the Federal Magistrate.
It follows that the additional challenges referred to by Mr Ferguson in his written submissions, are, also, dismissed.
Expert evidence of Mr Anthony Douglas-Brown
Mr Ferguson next challenged the decision of the Federal Magistrate to admit the expert evidence of Mr Anthony Douglas-Brown. More specifically, in his submissions in support of this ground of appeal, Mr Ferguson complained that the Federal Magistrate erred in accepting the evidence of Mr Douglas-Brown on the question of the valuation of the goodwill of the Midland business.
The evidence in relation to the valuation of the Midland business was relevant to the question of damages. Mr Douglas-Brown said that in his opinion, the value of the goodwill of the Midland business at the time of purchase was $30,000. By contrast, Mr Robinson, who was the expert called by Ferguson Consolidated, stated that in his opinion the goodwill valuation was $155,000. The Federal Magistrate accepted the evidence of Mr Douglas‑Brown and made a finding that the respondent was induced to pay $90,000 more for the goodwill of the Midland business than it was worth. The Federal Magistrate awarded $90,000 for the capital loss as part of the damages awarded to the respondent.
In support of this ground of appeal, Mr Ferguson contended that Mr Douglas-Brown was not qualified to give expert evidence on a business valuation. Mr Ferguson also contended in his written submissions, that the Federal Magistrate should have accepted the evidence of Mr Robinson.
The same objection in relation to the admissibility of Mr Douglas-Brown’s evidence was made at trial. There it was contended that Mr Douglas-Brown lacked the necessary expertise to give expert evidence in relation to the valuation of businesses that were not in financial difficulty because he was primarily an insolvency practitioner. The same submission was repeated by Mr Ferguson on appeal.
In his reasons, the Federal Magistrate rejected this contention and held that Mr Douglas-Brown was qualified to give expert evidence on the valuation of the Midland business. In coming to that finding, the Federal Magistrate referred to the fact that Mr Douglas-Brown held relevant tertiary qualifications, was an official liquidator of the Supreme Court of Western Australia and had been involved in external administrations of over 300 companies over the last 25 years. Further, the Federal Magistrate noted it did not follow that because Mr Douglas-Brown was an insolvency practitioner that he had no expertise in valuing the goodwill of businesses. The Federal Magistrate noted that companies in financial distress may have a significant goodwill component which insolvency practitioners would be required to value. In any event, the Federal Magistrate said that the Midland business was not in sound financial health, and was of the type of business with which Mr Douglas-Brown was accustomed to dealing.
The Federal Magistrate, also, noted that Mr Robinson had no tertiary qualifications, was a real estate agent who, as part of that business, had acted as a business broker for about four years, had no special expertise in valuing companies or businesses, whether in distress or not, was not able to name a single valuation text, and his only qualification was that he had done a very short Real Estate Institute of Western Australia course in valuation.
The Federal Magistrate observed at [105] of his reasons:
In the circumstances, the Court has come to the view that Mr Robinson's evidence ought not to be accepted as the evidence of an expert. In any event, the Court would prefer the evidence of Mr Douglas Brown. His evidence was given in a proper and professional manner and he had command of the materials upon which his analysis was based. By contrast, Mr Robinson was full of bluster, and gave every appearance of, both in his written evidence and oral evidence, not understanding the valuation methodology that he purported to employ. Furthermore, he was a person who had had business dealings with Mr Ferguson and the Court was not entirely satisfied that his evidence could be said to be independent.
In my view, on the basis of the findings which the Federal Magistrate made, it was open to the Federal Magistrate to treat the evidence of Mr Douglas-Brown as the evidence of an expert in the field of business valuation, and to prefer Mr Douglas-Brown’s evidence to the evidence of Mr Robinson.
There was, also, a challenge made to the admission of Mr Douglas-Brown’s evidence on the basis that he did not disclose his reasoning for his opinion as to the valuation of the goodwill of the Midland business. This challenge is dismissed. Mr Douglas-Brown stated in his report of 16 October 2008, that he was sceptical as to whether the Midland business had any goodwill in April 2005, but was prepared to use a multiplier of one of the annual profit of the business, as the means of putting a value on that goodwill. Mr Douglas-Brown explained that that was an appropriate multiplier to apply, having regard to the poor records of the Midland business and its limited trading history. In fact, Mr Douglas-Brown went on to say that the profit figure (to which he had applied the multiplier) was marginal and that it was doubtful that a person would buy the business in those circumstances, with the consequence that he believed “in all likelihood, that the value of the goodwill was probably nil”. Further, Mr Douglas-Brown in his supplementary report, repeated his scepticism as to the value of the goodwill of the Midland business and explained why it was not appropriate to apply any of the traditional valuation methods to valuing the goodwill of the business. In my view, Mr Douglas-Brown more than adequately exposed his reasons in support of the opinion he expressed.
This ground of appeal is dismissed.
Assumptions as to the number of employees
Mr Ferguson contended that the Federal Magistrate erred, in assessing the amount awarded for trading losses incurred by the Midland business, on the basis that the respondent paid wages and superannuation to 2.6 employees.
As already mentioned, the Federal Magistrate found that there had been a break in the chain of causation, such that Ferguson Consolidated and Mr Ferguson were not liable for any of the trading losses incurred in the Rockingham business, but were liable for the trading losses incurred in the Midland business from 15 April 2005 (the date of settlement) to 27 October 2005.
After having delivered his primary judgment on liability, the Federal Magistrate adjourned the hearing to deal with the quantification of damages separately. The respondent, then, filed a further affidavit of Mr Douglas-Brown in support of its claim for trading losses. Attached to that affidavit, was a report which set out the trading figures which Mr Douglas-Brown had compiled based on the MYOB computer data files for the Midland and Rockingham businesses, which the respondent had provided to him. The report dealt with the trading figures from 15 April 2005 (when the respondent commenced trading in the Midland business) to October 2006.
In its written submissions on the question of trading losses, the respondent extracted from Mr Douglas-Brown’s report, the following figures from the MYOB computer data files for the period from April 2005 to October 2005 in respect of the trading losses incurred in the Midland business:
Apr 05 May 05 Jun 05 Jul 05 Aug 05 Sep 05 Oct 05 Total Wages $2,244 $3,797 $4,566 $5,895 $5,188 $6,422 $7,085 $35,197 Superannuation - - $1,769 $524 $377 $346 $346 $3,362 Profit / loss ($3,400) ($16,021) ($12,235) ($5,686) $8,458 ($924) $9,334 ($20,474)
In order to give effect to the Federal Magistrate’s order that the Midland business’s trading losses were to be calculated on the basis of wages and superannuation being paid in respect of 2.6 employees, the respondent then, in its written submissions, engaged in an adjustment process whereby it recalculated the respondent’s trading losses by reference to the figures for wages and superannuation Mr Douglas-Brown used in analysing the reliability of the Midland figures. The consequence of the adjustment made to the figures set out above, was to increase the sum of the wages total to $48,451 and the superannuation total to $4,361, with the further consequence, that the recalculated profit and loss line reflected a loss of $34,727.
A further adjustment was made in the submissions to the profit figure for the month of October 2005, to reflect the finding by the Federal Magistrate that the losses were to be calculated to 27 October 2005. This further adjustment reflected a trading loss for the period 15 April 2005 to 27 October 2005 of $35,842. This was the amount which the Federal Magistrate awarded as damages for trading losses.
In my view, the Federal Magistrate erred in ordering that the Midland business trading losses were to be calculated on the assumption that wages and superannuation were paid in respect of 2.6 employees in the business, rather than by reference to the actual amount, as reflected in the MYOB computer data files, as having been incurred by the respondent in the conduct of the Midland business in respect of wages and superannuation.
The evidence revealed that in assessing the reliability of the representations made in the Midland figures for the period July 2004 to January 2005, Mr Douglas-Brown made an adjustment to the item allocated to wages and superannuation in the Midland figures to reflect the fact that Mr Ferguson had not properly allocated the number of equivalent full-time employees working in the Midland business, and so had understated the profit for the Midland business. However, in my view, it did not follow from the fact that Mr Douglas‑Brown was required to adjust the wages and superannuation figures reported by Mr Ferguson in the Midland figures, in order to calculate the true profit figure for the period during which the Midland business was conducted by Ferguson Consolidated, that an adjustment should also be made in respect of the wages and superannuation figures recorded by the respondent in its books, during the time when it conducted the Midland business.
The object of the award of damages is to compensate the injured party for actual losses incurred. In my view, therefore, this ground of appeal should be upheld and the appropriate figures for wages and superannuation to be used in calculating the Midland business trading losses, should be the figures extracted at [67] above. When that profit figure for the month of October 2005, is adjusted to reflect the 27 day limitation, the appropriate figure is $8,130, with the consequence that the total trading losses for the Midland business for the period 15 April 2005 to 27 October 2005, recorded in the extracted chart at [67] above, is increased from $20,474 to $21,678. The further consequence is that the amount awarded by the Federal Magistrate of $35,842 for trading losses is decreased to $21,678.
Accordingly, order 2 of the orders made by the Federal Magistrate on 18 June 2010, should be varied to replace the sum of $145,842 with the sum of $131,678.
Knowingly concerned
The next ground of appeal is that the Federal Magistrate erred in law in finding that Mr Ferguson was liable as a person knowingly concerned in the misleading or deceptive conduct of Ferguson Consolidated, pursuant to s 75B of the Trade Practices Act.
The Federal Magistrate made a finding that Mr Ferguson knew that the figures which were contained in the profit and loss representation were wrong. The Federal Magistrate rejected Mr Ferguson’s explanation that errors and omissions in the Midland figures occurred by way of Mr Ferguson’s oversight. The Federal Magistrate came to the view that Mr Ferguson had deliberately overstated the profits in order to induce Dr and Mrs Roguszka to buy the business. The Federal Magistrate found that the financial difficulties which Mr Ferguson faced in relation to the Sydney store, in which Mr Ferguson was a partner, provided the motivation to Mr Ferguson to deliberately overstate the Midland business profit in the Midland figures, in order to achieve a sale of the Midland business. The Federal Magistrate, also, relied upon Mr Ferguson’s admission, that he attended the meeting with Dr and Mrs Roguszka on 28 February 2005, intent on “closing the deal”, to support this finding.
Further, the Federal Magistrate said that Mr Ferguson admitted that he knew that each of the two employees, Ms Loncaric and Ms Downing, worked full-time in the Midland store. However, the Federal Magistrate observed that Mr Ferguson did not allocate their wages on that basis, namely, as full-time workers, in the Midland figures. The Federal Magistrate found that that this conduct by Mr Ferguson showed a deliberate indifference to the true state of the affairs and to the accuracy of the Midland figures which were forwarded to the business broker for the purpose of being used in connection with the sale of the Midland business.
The Federal Magistrate, also, found that Mr Ferguson was prepared to make the trading stock representation, notwithstanding, that he knew that it was misleading.
In his written submissions, Mr Ferguson contended that he did not have actual knowledge of the errors contained in the Midland figures. Further, he said that the Federal Magistrate erred by inferring that he was motivated by financial difficulties make the Midland figures look better than they really were.
Mr Ferguson’s assertion that he did not have actual knowledge of the inaccuracies in the Midland figures and was not motivated, as found by the Federal Magistrate, is to no avail in the appeal process. It is incumbent on Mr Ferguson to demonstrate some error in the Federal Magistrate’s fact-finding process.
In my view, Mr Ferguson has failed to demonstrate any such error. In making his finding, the Federal Magistrate relied upon the fact that, in his evidence, Mr Ferguson admitted that there were errors in, and omissions from, the Midland figures, and rejected Mr Ferguson’s explanation that these errors and omissions occurred through oversight. Rather, the Federal Magistrate found that Mr Ferguson deliberately inflated the profit figure because the Sydney store was in financial difficulty, and he was, therefore, anxious to induce Dr and Mrs Roguszka to enter into contractual relations.
It was open to the Federal Magistrate, on the findings that he made, to come to the view that he did.
It is to be observed that in his submissions, Mr Ferguson did not take issue with the Federal Magistrate’s findings that Mr Ferguson knew that the trading stock representation was misleading or deceptive. However, in light of Mr Ferguson’s admission that he knowingly omitted to advise Dr and Mrs Roguszka that there would be occasions when the warehouse would run out of stock, or a particular line of stock, it was plainly open to the Federal Magistrate to make this finding.
This ground of appeal is dismissed.
The respondent, also, contended that the finding of the Federal Magistrate that Mr Ferguson was knowingly concerned in the contraventions could be supported by other findings which the Federal Magistrate had made, in the course of dealing with the making by Mr Ferguson of the representations.
In my view, the Federal Magistrate’s finding could have also been supported, by his finding in respect of the container representation – this being Mr Ferguson’s representation in March 2005, that he had already placed orders for three containers of stock for the Midland business. Mr Ferguson admitted that he had not placed orders for three containers by the date of that meeting. It was his case, that he had never made the representation in question (paras 42-48 of the Further Amended Defence and Cross-Claim). Once the Federal Magistrate found that Mr Ferguson had made the representation in question, it followed, that Mr Ferguson would have known that he had not placed an order for three containers of furniture and that the statement was untrue.
On a number of occasions, during his oral submissions, Mr Ferguson asserted that he had, in fact, ordered three containers of furniture. Mr Ferguson made the same submission to the Federal Magistrate. The Federal Magistrate found, and this did not appear to be disputed, that Mr Ferguson had not, prior to his meeting with Dr and Mrs Roguszka in March 2005, placed an order or orders for three containers of furniture for the Midland business, rather, Mr Ferguson had only placed an order for one container by that time.
The fact that Mr Ferguson may sometime after the meeting, have placed orders for other containers of furniture, does not address the point.
The apportionment of liability
Mr Ferguson also contended that the Federal Magistrate erred in failing to apportion liability between himself and Ferguson Consolidated pursuant to s 87CD of the Trade Practices Act.
At the trial, Mr Ferguson and Ferguson Consolidated contended that liability should be apportioned, on the grounds that the respondent’s claim was an “apportionable claim” within the meaning of s 87CB(1) of the Trade Practices Act; that each of Ferguson Consolidated and Mr Ferguson was a “concurrent-wrongdoer” whose acts or omissions had caused the respondent’s loss. Therefore, they said, liability should be apportioned between them to reflect the proportion of the damage or loss that the Court considered just, having regard to the extent of their respective responsibility for the respondent’s damage or loss.
The Federal Magistrate found that pursuant to s 87CC(1)(a) of the Trade Practices Act, a “concurrent‑wrongdoer” did not have the benefit of apportionment if the wrongdoer intended to cause the economic loss or damage claimed. The Federal Magistrate found that it was clear on the facts that Mr Ferguson and Ferguson Consolidated intended to cause the respondent’s economic loss, including the payment of inflated goodwill for the Midland business. The Federal Magistrate, accordingly, declined to apportion liability.
In my view, s 87CD of the Trade Practices Act, has no operation in the circumstances of this case. This is because Mr Ferguson’s liability arose by reason of being knowingly concerned in the contraventions by Ferguson Consolidated pursuant to the operation of s 75B of the Trade Practices Act. The definition of “concurrent-wrongdoer” in s 87CB(3) refers to a person “who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss, that is the subject of the claim”. In this case, the acts or omissions which comprised Ferguson Consolidated’s contravening conduct, were the acts or omissions of Mr Ferguson, in his capacity as a director of Ferguson Consolidated. It is, therefore, not possible to make an apportionment by reference to the extent of the responsibility of two different persons, which is called for by s 87CD(1)(a) of the Trade Practices Act.
In any event, on the basis of the Federal Magistrate’s findings in respect of Mr Ferguson’s knowledge of, or alternatively deliberate indifference as to, the falsity of the Midland figures and his motivation for using those figures, it was open to the Federal Magistrate to come to the view that Ferguson Consolidated and Mr Ferguson intended to cause the economic loss which has been suffered by the respondent.
Assessment for damages for lost stock orders
The final ground of appeal is that the Federal Magistrate erred by awarding damages to Ferguson Consolidated for loss of commission that would have been earned on orders of stock made for the Midland business, by reference to a period of 42 days from 8 November 2006.
At trial, the Federal Magistrate found that the respondent had breached the Midland licence by, without the consent or authority of Ferguson Consolidated, ceasing to trade under the name of “Woodstock Furniture” from 8 November 2006. The respondent did not place any orders with Ferguson Consolidated for stock thereafter.
The question for the Federal Magistrate to determine was the period of time, by reference to which, he was to assess Ferguson Consolidated’s loss for commissions forgone. The Federal Magistrate determined that the period should reflect the period which comprised the reasonable notice period that the respondent would have been required to give to Ferguson Consolidated, to terminate the Midland licence.
The Federal Magistrate then determined a reasonable notice period of 42 days. On the basis of the evidence that Ferguson Consolidated had received commissions totalling $16,933.43 in the financial year ending 30 June 2006, in respect of orders placed for the Midland business, the Federal Magistrate awarded damages of $1,948.38 by apportioning that annual amount.
This order of the Federal Magistrate was made in favour of Ferguson Consolidated only. As mentioned, Ferguson Consolidated is now deregistered. Mr Ferguson has no standing to appeal against this order. Therefore, this ground of appeal is dismissed.
However, I observe that I would, in any event, have dismissed the ground of appeal on the basis that the Federal Magistrate did not, for the reasons which he gave, err.
Subpoena to Mr Barry Pike
At the commencement of the appeal, Mr Ferguson applied for leave to issue a subpoena to Mr Barry Pike to give evidence at the appeal.
Mr Ferguson said that he needed to call the evidence of Mr Pike at the appeal to prove that a respectable licensed business broker, would not allow Mr Ferguson to say to Dr and Mrs Roguszka that they “could double the sales, or increase the sales significantly”. This was a reference to the future trading representation.
I refused Mr Ferguson’s application to issue the subpoena for the purposes of calling evidence on appeal.
The basis upon which I refused Mr Ferguson’s application was that Mr Ferguson had failed to comply with O 52 r 6 of the Federal Court Rules, which requires advance notice, supported by an affidavit, of any application to adduce further evidence on appeal.
Secondly, Mr Ferguson did not show that, despite the exercise of reasonable diligence, he was unable to adduce this evidence from Mr Pike at the trial. Mr Ferguson was legally represented at the trial and Mr Pike was not called to give evidence at the trial. It would seriously undermine the principle of finality of litigation, and would also be prejudicial to the respondent, if Mr Ferguson were to have been permitted, in these circumstances, to
adduce this further evidence on appeal.
I certify that the preceding one hundred and three (103) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate:
Dated: 25 November 2011
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