Helco Pty Ltd v OHaire, D.P

[1991] FCA 101

Re: HELCO PTY LIMITED; MONRO FAMILY HOLDINGS PTY LIMITED and K.A. and S.E.
MONRO PTY LIMITED
And: DENNIS PATRICK O'HAIRE and BRIAN V. O'HAIRE
No. G422 of 1990
FED No. 101
Trade Practices - Negligence
(1991) 13 ATPR 41-099
28 FCR 230

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Davies(1), Gummow(1) and Hill(1) JJ.

CATCHWORDS

Trade Practices - misleading or deceptive conduct - contract for sale of business - whether letter confirming a previous telephone conversation amounted to a warranty - whether letter a representation as to present fact or future state of affairs - whether letter contravened s.52.

Negligence - negligent misstatement - whether letter furnished advice or stated a fact.

HEARING

SYDNEY

#DATE 21:3:1991

Counsel for the respondents: A. Sullivan QC with Mr R.J. Weber

Solicitors for the respondents: Ebsworth and Ebsworth

ORDER

The appeal be dismissed with costs.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an appeal from a decision of a Judge of this Court (Einfeld J.) in which his Honour dismissed an application for damages and declaratory relief in respect of alleged contravention of s. 52 of the Trade Practices Act 1974 ("the Act") and alleged negligent misstatement. The litigation arose out of a dispute concerning the sale of a business. The counsel who appeared on the appeal had not appeared at the trial.

1. Mr K.A. Monro was a director of each of the appellants, which for some 18 years had conducted, at premises situated in Lidcombe, a Sydney suburb, a business of manufacturing and wholesaling swimwear for women and children. In 1987, the appellants decided that the business should be sold and retained Mr A.G. Robinson, a solicitor in practice in Sydney, to act for them in the matter.

2. On about 6 August 1987, Mr Robinson received from Messrs Arthur Young, chartered accountants, a document dated 6 August 1987, and headed "Heads of Agreement". That firm had been engaged by Mr Robinson's clients as business brokers. The document gave particulars of the proposed sale of the goodwill, plant, equipment and other assets of the business to Hitex Corporation Pty Limited. Hitex Corporation Pty Limited ("Hitex") was a company incorporated in Victoria, the directors of which were John Wallace Stevenson and his wife, Kaye Elizabeth Blaikie. The price specified was $375,000 "Plus stock at valuation (Approx. $150,000 and assumed to be current)". A deposit of $50,000 was to be paid on 7 August 1987 with settlement on 1 October 1987. After settlement, there would be a balance remaining of $225,000 to be paid 12 months thereafter. The directors of the purchaser were to provide personal guarantees for payment of that sum. The Heads of Agreement also provided for the services of Mr and Mrs Monro to be retained for a period of no greater than six months from the settlement date.

3. Following receipt of the Heads of Agreement, Mr Robinson advised Mr Monro that he was concerned that there was no security for the deferred component of the purchase price, and told him that he would try to obtain some security for that liability. The respondents carry on a practice as solicitors in Melbourne under the style "O'Haire and O'Haire". Mr D.P. O'Haire, the first respondent, was acting for the purchaser in the transaction.

4. On 13 August 1987, there was a telephone conversation between Mr O'Haire and Mr Robinson. The content of that conversation was the subject of affidavits sworn by these gentlemen, which conflicted in certain respects. At the trial, there was cross-examination of the deponents. In address, each counsel urged the learned primary Judge to prefer the evidence of the witness called in his case. However, in his reasons for judgment, his Honour did not attempt to rule upon the points of conflict, saying that he regarded a subsequent letter from Mr O'Haire's firm to Mr Robinson as "the more definitive in this regard". However, as will appear, the letter purports to confirm the telephone conversation, and in considering any ambiguities or subtleties in the terms of the letter, it must be of assistance to have regard to the dealings which immediately preceded the letter. The Court is concerned with alleged negligent misstatement and also with "conduct", which as sub-s. 4 (2) of the Act indicates, in a case such as the present, is not a narrow concept confined by the parol evidence rule.

5. There was some measure of agreement between Mr Robinson and Mr O'Haire as to what was said in their telephone conversation of 13 August 1987. Mr Robinson indicated a concern that no security was provided for the deferred part of the purchase price. Mr O'Haire said that Mr Stevenson was a partner in a national accounting firm, Bourne Griffiths. He also said that Stevenson and Blaikie had personal assets "many times greater than" (Mr Robinson's version) or "well in excess of" (Mr O'Haire's version) the amount of the guarantee given by them. As we have indicated, the Heads of Agreement provided that the directors of Hitex would provide personal guarantees over the sum payable twelve months from the settlement. Mr O'Haire said he was acting in a number of matters involving Mr Stevenson and that "he knew a fair bit about his financial position". Mr Robinson asked Mr O'Haire for a letter that day confirming that to Mr O'Haire's personal knowledge Stevenson and Blaikie had assets "sufficient to cover the guarantee" (Mr O'Haire's version) or "of the magnitude you have indicated" (Mr Robinson's version). The witnesses were agreed that Mr Robinson said that he did not mean a letter stating that Mr O'Haire was instructed that Stevenson and Blaikie had assets, but that to Mr O'Haire's knowledge they had the assets in question. Mr Stevenson was present with Mr O'Haire in his office during this conversation.

6. Mr O'Haire also gave evidence that in the course of the conversation he told Mr Robinson that he did not understand why he would be wanting a letter from him "except for getting yourself and your client to nail me"; he said that Mr Robinson responded by saying "No. There is no intention of that. We simply need some indication of their net worth". Mr Robinson denied this part of the conversation and the conflict in testimony was not adverted to by his Honour in his reasons for judgment.

7. During the telephone conversation on 13 August 1987 Mr Robinson took a file note, the terms of which included the following:
   

"Want covenant rest. him and his wife. May be son. DO to send draft - no problem. Monro worried about deferred payment. Usband (sic] outside sec not avail for some reason.

floating charge + bill of sale over stock? Stevenson and Blaikey (sic] - how do we know what worth or where assets are? S and B have assets many times greater than any claim that could arise under gtee. Know St involved fair bit . . .

At least give us letter confirming own knowledge. Not instructed suff assets to meet gtee.

1. letter re fin pos this pm

2. draft rest covenant for contract."

Mr O'Haire also made a file note of the conversation but it was lost.

1. Later, on 13 August 1987, Mr Robinson received by facsimile a letter from Mr O'Haire's firm. This was an hour and a half or two hours after the conversation. The text of the letter, omitting formal parts, was as follows:
   

"We refer to the discussion between yourself and our Mr O'Haire this morning (13th August 1987).

We now enclose draft protective Convenant. We now confirm that to our knowledge Mr Stevenson and the other director of Hitex Corporation, Kaye Blackie, (sic] jointly have personal net worth well in excess of the debt to be guaranteed by them arising out of this transaction. We await Heads of Agreement."

1. The correct meaning to be attached to the third paragraph of this letter was the subject of dispute at the trial and on the appeal.

2. The conduct of the conversation on 13 August 1987 by medium of the telephone and the transmission of the letter by facsimile process, had the effect of providing the constitutional facts to attract the additional operation of s. 52 of the Act, pursuant to the provisions of sub-s. 6 (3). Accordingly, at the trial, no point arose as to the absence of a trading corporation as a respondent. Nor is it necessary to decide whether the communings between Mr Robinson in Sydney and Mr O'Haire in Melbourne amounted to interstate trade or commerce so as to attract para. 6 (2) (a). There was, however, debate as to whether s. 52 of the Act could apply in the circumstances of this case, the dispute being as to whether the conduct in question was "in trade or commerce" for the purpose of that section. That dispute was independent of the above jurisdictional or constitutional facts attracting the jurisdiction of the Court. No effort was made to found liability in the respondents upon s. 75B of the Act.

3. On 17 August 1987, Mr Robinson tendered to Mr O'Haire's firm a draft contract of some twelve pages. Notwithstanding the events of 13 August, cl. 1.2 of the draft provided for the grant of a fixed and floating charge over the assets of the business sold as security for payment of the balance of the purchase price. There was then a further telephone conversation between Mr Robinson and Mr O'Haire. Again, there is some dispute as to the terms of this conversation. But it appears to be common ground that Mr O'Haire told Mr Robinson that the Helco acquisition was part of a much larger expansion by Mr O'Haire's clients, and that their financier would be requiring security over the assets of the company so that none would be available to Mr Robinson's clients. Mr Robinson said that he and his clients were "basically happy" with what Mr O'Haire had said about Mr Stevenson's assets, but still wished to have attached to the contract details of Mr Stevenson's assets and liabilities.

4. In the week following that conversation a contract executed by Hitex Knitting Mills Pty Limited as purchaser was tendered by Mr O'Haire's firm, and on 8 September 1987, Mr Robinson sent back to Mr O'Haire's firm the fully executed contract. The contract did not provide for security in respect of the balance of the purchase price. It provided for a deposit of $50,000 on the date of the contract, for a further $250,000 to be paid on completion, to take place within 30 days, and for the balance of the purchase price together with any amount paid for stock at the value thereof at the date of completion, to be paid on the first anniversary of completion. The contract included a guarantee by John Wallace Stevenson and Kaye Blaikie of due and punctual payment of the purchase price including any amount paid for stock in accordance with the agreement. Completion took place on 10 November 1987. The balance of the purchase price and related indebtedness was not paid.

5. Receivers and managers of the whole of the undertaking of property and assets, both present and future, of Hitex Knitting Mills Pty Limited were appointed on 24 June 1988 and the net liabilities of the company as disclosed in the report of the receivers and managers as to the affairs of the company were $2,994,000. John Wallace Stevenson and Kaye Blaikie became bankrupt, upon their own petition, on 21 September 1988, that is to say before the first anniversary of completion, 10 November 1988. Their joint statement of affairs (which was incomplete) showed a deficiency of $2,299,115.

6. In these circumstances, by Application filed 12 April 1989, the appellants sought from the respondents damages representing the balance of the purchase price payable pursuant to the agreement, in the sum of $200,000. It appears that the parties later agreed that if the appellants were to recover damages, it should be in the sum of $186,105, with interest. In the Statement of Claim, reliance was placed in particular upon what was said in the telephone conversation of 13 August 1987 and the letter of the same date. It was alleged that representations had been made which were misleading or deceptive, or likely to mislead or deceive, and that in reliance upon those representations and induced by them the appellants had proceeded with the completion of the agreement. It was alleged that Stevenson and Blaikie did not to the knowledge of the respondents jointly have a personal net worth well in excess of the debt to be guaranteed by them arising out of the transaction. It was also said that in the circumstances the respondents were under a duty to exercise reasonable care in making those representations, and that in breach of that duty they had failed to exercise reasonable care and were negligent in making the representations.

7. His Honour held that the letter of 13 August 1987 was in fact "no more than an assurance or re-assurance that the purchasers should feel content that the risk of non-payment of the postponed part of the purchase price was as minimal as the first respondent knew from what the guarantors had disclosed to him and from other knowledge he had". This passage was not put at the forefront of his Honour's reasoning, but as will become apparent, in substance it is close to the conclusion we have reached.

8. Mr O'Haire had known Mr Stevenson for some 6 years. Mr Stevenson was his accountant. Mr O'Haire gave evidence that on 13 August 1987, when he had the discussion with Mr Robinson, he knew the value of the interest of Mr Stevenson in the accountancy partnership to be somewhere between $400,000 and $600,000. Mr O'Haire had ascertained that information from having sighted the partnership accounts prepared at about April 1987, and having discussed the matter at some length with Mr Stevenson; he also had understood that new partners had been admitted on 1 July 1987 with the result that the value of the shares of the existing partners had been pegged at somewhere between $400,000 and $600,000. He had in mind that Mr Stevenson's interest was worth at least $400,000. Mr O'Haire had also referred in his conversation with Mr Robinson that Mr Stevenson had a shareholding in a listed public company. The company was Zephyr Investments Limited which had been listed on the second board of the Australian Stock Exchange on 10 July 1987. Shares in the company, to a value in August 1987 of about $575,680, were held by a corporate trustee of Mr Stevenson's family trust. Mr O'Haire believed these shares nevertheless were "accessible" to Mr Stevenson. To his knowledge, the only named beneficiaries under the trust were Mr Stevenson and Miss Blaikie. There was some inconclusive cross-examination, conducted largely by reference to later events, as to Mr O'Haire's knowledge of Mr Stevenson's liabilities as at 13 August 1987.

9. Mr Stevenson had moreover a substantial interest in the Hitex group. By August 1987, it had been arranged that Mr O'Haire's company Carlisle Properties Pty Limited would be acquiring a 20 per cent interest in the Hitex group, for the sum of some $500,000. Thus his involvement in the matter was more than just that of a legal adviser. His failure to make this known to Mr Robinson was the subject of criticism by his Honour but, for present purposes, it is of some significance as indicating the degree of Mr O'Haire's knowledge of Mr Stevenson's affairs. The trial judge, by his finding that there was "no relevant misstatement" in the letter of 13 August 1987, held that the letter accurately reflected Mr O'Haire's knowledge of Mr Stevenson's affairs, and that Mr O'Haire had sufficient information to justify the statement in the letter.

10. Counsel for the appellants pointed to passages in the judgment below in which the letter of 13 August 1987 was characterised as a "letter of comfort" which was legally unenforceable. That was, it was submitted, to misconstrue the case put at the trial. We accept that criticism. We also accept the submission for the appellants that the matter is largely one of construction of the letter itself.

11. However, it is plain from the conversation which preceded the letter, and which is referred to in the letter, that the occasion for the statement in the third paragraph as to joint personal net worth was the lack of security for the deferred part of the purchase price, which as specified in the then current Heads of Agreement would be $225,000. It was this liability which, in our view, was encompassed by the phrase in the letter "the debt to be guaranteed by them arising out this transaction". Indeed, para. 6 of the Heads of Agreement deferred the ambit of the guarantee to be given by the directors of the purchaser as "the sum payable twelve months from settlement", plainly excluding, as one might have expected, the moneys payable before or on settlement.

12. The total moneys payable under those Heads of Agreement would exceed $500,000. Counsel for the appellants submitted that the letter of 13 August 1987 meant that the debts referred to as guaranteed were this larger sum. For the reasons we have given, we reject that submission. Once that submission is rejected, the resolution of the issue as to Mr O'Haire's knowledge becomes clearer.

13. The appellants avowedly eschewed any submission that the letter contained a warranty in the usual sense of that term. Both below and on appeal, the case was put that the letter made a representation as to present fact, not a future state of affairs when the guarantees might be called upon by the appellants.

14. The insistence by Mr Robinson in the preceding telephone conversation that Mr O'Haire speak in the letter as to his knowledge not his instructions, indicates that the appellants, through their solicitor, were looking to a statement having an independent force and authority derived from Mr O'Haire's assertion that he knew a fair bit about Mr Stevenson's financial position. It was not submitted that in writing for his firm as he did, Mr O'Haire acted dishonestly.

15. In our view, the letter is to be construed as a statement of the quantum of the joint personal net worth of the guarantors which is not derived merely from what has been relayed by others to Mr O'Haire. Rather, the statement is made as to the facts as understood by Mr O'Haire's firm, based upon his own acquaintance and familiarity with the business affairs of the guarantors. The letter was to be sent, according to Mr Robinson's note of the telephone conversation, "this pm". Thus, there was to be no real opportunity for Mr O'Haire to make any fresh detailed enquires of Mr Stevenson.

16. The submission for the appellants was that the letter was to be read as a statement "that Stevenson - Blaikie had, as at August 1987, net worth well in excess of the 'debt to be guaranteed by them' in consequence of the appellant's purchase of Hitex and that Mr O'Haire knew this". (Emphasis supplied]. To rephrase the statement into two parts in this way is virtually to frame it as a warranty, which was not how the case was said to be put.

17. In our view, if the letter is to be construed as we have said it should be, it follows that there was no contravention of s. 52 of the Act. Mr O'Haire's firm spoke as to the facts as Mr O'Haire understood them from his acquaintance and familiarity with the business affairs of the guarantors. It follows that the application, insofar as contravention of s. 52 was alleged, was correctly dismissed, albeit for reasons which do not reflect all of the reasoning of the learned primary Judge.

18. This makes it unnecessary to deal with the other grounds advanced on this part of the appeal. In particular, we leave open the question of whether, by reason of the activities of Mr O'Haire in this matter, which, in any event, may have gone beyond the ordinary exercise by a solicitor of his profession, as traditionally understood in this country, the firm was engaging in conduct "in trade or commerce" within the meaning of s. 52. In answering that question, each case has to be looked at on its own facts and there is a danger in excluding the operation of the section by some a priori classification of a category of conduct or pursuit of a vocation or calling as traditionally understood; cf. Goldfarb v Virginia State Bar 421 US 773 at 786-788 (1975); Holman v Deol (1979] 1 NSWLR 640 at 649; Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 215 at 218-220; Street v Queensland Bar Association (1989) 168 CLR 461 at 538-540.

1. There remains the claim in negligent misstatement. In the Statement of Claim, it was alleged that the respondents were under a duty to exercise reasonable care in making the statement in the third paragraph of the letter of 13 March 1988. This was said to be a representation. (Reliance initially was placed also upon the anterior telephone conversation but, as we have indicated, the case ultimately was fought upon the terms of the letter.) It was then alleged that the respondents failed to exercise reasonable care and were negligent in making the representation in the letter, for various reasons. It was said that the representation was made without any or any proper regard to its correctness or accuracy, that the respondents failed to satisfy themselves in relation to the personal net worth of the guarantors, that adequate and proper inquiries had not been made of the guarantors, and that the respondents ought to have known that the representation was untrue.

2. The learned primary Judge held, inter alia, that he was not convinced the respondents owed a duty of care, that if there was such a duty it was not breached, and that Mr O'Haire did not know the appellants would proceed with the sale in reliance on the letter.

3. Counsel for the appellants forcefully criticised the paucity, indeed in some respects, the absence in the reasons for judgment, of an indication of the reasoning by which these conclusions were reached.

4. It was accepted in the submissions on the appeal that the relevant principles as to the existence and content of any relevant duty of care are those expounded in L. Shaddock and Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225 at 231-235, 239-244, 247-251, 253, 255-256.

5. This is a case, upon the facts as we have outlined them, in which, in the terms of the authorities in this area, the appellants were looking to the first respondent to supply information rather than furnish advice in any usual sense of the term. The letter was provided upon a serious occasion, the settlement between the solicitors for the parties of the terms of an agreement for sale of a business, where the purchasers were refusing to provide security for a deferred payment of part of the purchase price. We are prepared to assume that the first respondent, Mr O'Haire, realised or ought to have realised that what was said in the letter would be a basis for action by the appellants as vendors.

6. But what was the information he undertook in the telephone conversation to supply, and his firm then did supply later that day by letter, with which Mr Robinson subsequently described his clients as being "basically happy"? It was not a task which would give time for any further detailed enquiries of Mr O'Haire's clients because, as we have said, the letter was to be supplied, and was supplied, very promptly.

7. What Mr O'Haire undertook to furnish and his firm did furnish was a statement as to the facts as he understood them from his acquaintance and familiarity with the business affairs of the guarantors. He gave an accurate statement of his knowledge as it had been acquired up to 13 March 1987. The substance of the appellants' submissions on the appeal was that the first respondent undertook to speak as one with full knowledge of Mr Stevenson's affairs and, in effect, to give a warranty, so that he was careless in asserting specific conclusions purportedly based on that full knowledge. But, in our view, this is not what was undertaken over the telephone or done in the firm's letter.

8. For these reasons, in our view, the case as to negligent misstatement breaks down at this stage.

9. The appeal should be dismissed with costs.