Karam v GoodLuck Holdings Pty Ltd
[2005] QDC 276
•9 September 2005
DISTRICT COURT OF QUEENSLAND
CITATION:
Karam v GoodLuck Holdings Pty Ltd & Ors [2005] QDC 276
PARTIES:
THAMIR KARAM
Plaintiff
v
GOODLUCK HOLDINGS PTY LTD
(ACN 100 061 425)
First Defendant
and
DAYAL HASSARAM MANSUKHANI
Second Defendant
and
POOJA DAYAL MANSUKHANI
Third DefendantFILE NO/S:
D380 of 2004
DIVISION:
Civil
PROCEEDING:
Claim
ORIGINATING COURT:
Southport
DELIVERED ON:
9 September 2005
DELIVERED AT:
Southport
HEARING DATE:
14, 15, 27, 28, 29 April and 5 May 2005 with further written submissions received to 6 June 2005
JUDGE:
Rackemann DCJ
ORDER:
Judgment for the plaintiff against the defendants in the sum of $55,092 together with interest, at 9% for 14 months, in the sum of $5,784.65.
COUNSEL:
Mr M Campbell for the plaintiff
Defendants self-represented with the assistance of
Ms Meenaxi by special leave
SOLICITORS:
Ledger Commercial & Property Lawyers for the plaintiff
tionIntroduc
The plaintiff’s claim is for damages for allegedly having been induced, by misrepresentation, to enter into a contract for the purchase of a near worthless internet café business operated from leased premises at Scarborough Street, Southport (the shop premises).
The first defendant (GoodLuck) carried on business under the name “Loungetec Internet” (Loungetec[1]). It was the lessee named in the lease for the shop premises at the relevant time[2].
[1] See Exhibits 2A and 3A
[2] See Exhibit 43
The second defendant (Dayal) is the person with whom the plaintiff primarily dealt.
The third defendant (Pooja) is the wife of the second defendant. She was, at all material times, the sole director and shareholder of GoodLuck, but the evidence establishes that Dayal, although not a director, was the primary decision maker.
The primary liability issues relate to whether the purchase was induced by misrepresentations and, if so, the identity of the person or entity liable in that regard.
The defendants denied making misrepresentations and also denied the involvement of GoodLuck or Pooja. The defendants claim that, far from being the victim of misrepresentations to induce purchase, the plaintiff was a party to a conspiracy with, amongst others, the landlord of the shop premises. Matters of credit were to the fore.
The plaintiff’s case was pleaded on a number of bases including negligent misrepresentation. If the plaintiff’s case is made out however, the purchase was induced by fraud.
The defendants were initially self-represented, with the assistance of a visiting Indian lawyer, Ms Meenaxi. In the course of the case, I permitted Ms Meenaxi’s role to extend beyond the usual role of a McKenzie’s friend. To that extent she should be regarded as having special leave pursuant to s 52(1) of the District Court of Queensland Act.
The Misrepresentations
The Plaintiff’s case:
The plaintiff, an employed medical doctor, gave evidence that he moved from Victoria to the Gold Coast in January 2004, to take up an appointment at the Gold Coast Hospital. When he first arrived on the Gold Coast he did not have internet access. He visited the subject business for that purpose. It was at the shop premises that he met Dayal. Having noticed that there was a “Business for Sale” sign displayed, the plaintiff enquired as to the price. His initial impression was that the asking price ($51,111) was good, for the shop and business. At one stage he tried to negotiate a lower price, but Dayal kept to the original figure. The plaintiff had no previous business experience.
The plaintiff visited the internet café on more than one occasion and discussed matters with Dayal, who spoke in positive terms about the business. In the course of those discussions the plaintiff alleges that Dayal said things to the following effect:
(i) the business was a very good business, making in the order of $300-$400 per day[3];
[3] T 34, l 10
(ii) he was only leaving the business because he was involved in a much bigger business of providing internet terminals for which he needed larger premises[4];
[4] T 34, l 15
(iii) that the income of the business could be improved and that he could add a coffee bar, snack deli offering kebabs or the like so as to increase income to easily $1,000 per day[5];
[5] T 34, 1 30
(iv) that approval had been obtained from the “body corporate” to sell food[6];
[6] T 34, l 40
(v) that the net profit of the business was approximately $78,000-100,000 per year[7];
[7] T 34, ll 50-60
(vi) that the 18 computers used in the business, together with the chairs and desks, were all brand new[8];
(vii) that the computers all had registered licences for Microsoft 98[9];
(viii) that he had a three year lease with an option for renewal[10] which, upon purchase, would be transferred to the plaintiff[11].
[8] T 35, ll 1-10
[9] T 35, ll 10-25
[10] T 36, l 35
[11] T 36, l 50
The plaintiff’s evidence was that he was told by Dayal that it would be best to keep the transaction from the landlord for some time, so that it was not used as an opportunity to increase the rent[12].
[12] T 37-38
His evidence was that he had confirmed relevant matters in discussions with Pooja and also in discussions with a Mr Small whose company was, at the time, engaged to work in the business.
Mr Small, an internet service provider/computer technician, gave evidence that he came to know the plaintiff by reason of the plaintiff’s attendance at the shop premises. He confirmed that the plaintiff had spoken to him several times with respect to the business. His evidence was that Dayal had instructed him to “talk the business up as best I could”[13]. He denied directly discussing the income of the business but he admitted to having represented to the plaintiff that the computers were new, functional and had licensed software, having “talked the business up” and telling the plaintiff of the potential to increase revenues[14].
[13] T 300, l 25
[14] T 300-301
His evidence was that he believed, at the time, that the computers had ‘valid’ licences but he later came to believe something different[15]. He described his statements otherwise as “exaggerated”. He said that he made the statements “because I was instructed by my employer to talk the business up. The objective was that he wanted to move his company to another premises. In order to do that we needed to dispose of that business at that location, so I did as I was instructed”[16]. At the time, he knew that the computers were, in fact, “fairly old hardware purchased from auctions”[17] and was aware that the amounts of money coming into the business were “very, very minimal” and not sufficient to cover running costs[18].
[15] T 302
[16] T 301, l 45
[17] T 301, l 20
[18] T 301, l 35
Having decided to proceed with the purchase, the plaintiff executed the first of two contracts (“the first contract”). The first contract, dated 25 February 2004, was signed by each of the plaintiff and Dayal and witnessed by Mr Small and a Eugene Finey. It was entitled “Contract of Sale of Internet Café Sited at Shop 3-115 Scarborough Street, Southport, Qld, 4214” and was expressed to be between “Dayal Mansukhani of Loungetec Internet Services, (hereafter referred to as ‘Seller’), and Thamir Karam … (hereafter referred to as ‘Purchaser/Buyer’)”. The second paragraph of the document stated that: “For goods and valuable consideration, Seller has agreed to sell and Buyer has agreed to buy, the business upon the terms and conditions set forth in the contract…”
The body of the agreement stated that “It is agreed that the purchaser is to take over the shop sited at 3/115 Scarborough Street, Southport, Qld 4215”. The contents (computer systems, furniture, etc.) were listed. The purchase price was expressed to be payable as a deposit of $11,111.00 with the balance of $40,000.00 to be paid on or before 15 March 2004. The purchaser was to take possession on 15 March. All running costs were to be the responsibility of the buyer with payments initially made to Dayal “until the lease is changed into the buyer’s name” with “complete possession” within 30 days from 15 March.
Mr Small said that he drew up the contract and advised both parties to have an REIQ contract drawn up.
The plaintiff paid the deposit by instalments. Some of those instalments were paid in cash to Dayal. The rest was transferred to an account in the name of GoodLuck, the number of which was provided by Dayal[19].
[19] See Exhibit 6
The plaintiff wanted a further contract drawn and executed prior to payment of the balance of the purchase price. He began to draw up a standard form REIQ business sale contract, inserting details provided by Dayal, including the name “GoodLuck Holdings”, “Loungetec Internet Services”, the ACN for GoodLuck Holdings and the “BN” number for Loungetec as well as the name of Dayal’s solicitor and accountant. No contract, in that form, was executed.
Ultimately, a further contract was executed. The parties were expressed to be Dayal, as seller, and the plaintiff as purchaser. The contents of the sale were expressed to be the “business shop” and the contents listed in the contract. The contract represented that “All the contents are in good condition and functioning except the photocopier and the coloured printer, which requires repair”. The contract otherwise provided for the purchaser to take possession on 15 March 2004 but for the seller to stay in the shop for a further period of 30 days “as a time needed to find another business place to move”. The seller was to “mind the business” and be responsible for running costs and maintenance costs until the date of leaving. The purchaser was to have the income of the business from the date of payment and the seller was to pay $50 per day for each day he stayed on after 15 April 2004. The contract was signed by Dayal and the plaintiff and witnessed by Mr Small and Eugene Finey. The balance of $40,000 was paid, by a bank cheque, made payable to Dayal, within days of execution of the second contract.
Following execution of the second agreement and payment of the balance price, Dayal remained in occupation until 15 April. The plaintiff had arranged for his cousin to travel to the Gold Coast to run the business. In the period to 15 April his cousin attended the business to see how it was run.
The plaintiff’s evidence is that within the first week of taking over the business, it was realised that the representations which had induced the purchase were false. The maximum daily income was $30 rather than $300-$400[20]. The original licences for the computers could not be found. His suspicions having been aroused by a conversation with a disgruntled former employee of the business, the plaintiff inspected the computers to find that they were old[21].
[20] T 54, l 15
[21] T 55-56
The business revenues were low, notwithstanding that the plaintiff purchased four new computers, at a cost of $4,400, offered computer games for children, installed some flashing lights to draw attention to the business, opened later hours and distributed flyers.
Enquiries made of the council found that there was no approval in respect of serving food and coffee and that there would be difficulties in achieving such approval. Enquiries of Dayal as to the licences for the computer operating systems and as to transfer of the lease were met with unfulfilled promises. The lease was not transferred and licenses for the computer operating systems were not produced.
By letter dated 4 May 2004 the landlord’s agent purported to terminate the lease for breach, on account of a failure to pay rent and also on the basis of the agreement to sell the business and assign the lease without the consent of the landlord. Vacant possession was requested on 6 May 2004. A copy of that letter was provided to the plaintiff who then closed the business and vacated the premises. The letter was sent via the landlord’s then solicitors, Ledger Commercial & Property Lawyers. They did not, at that time, act for the plaintiff. The plaintiff subsequently retained them for the purposes of the present proceedings.
Thereafter the plaintiff moved the equipment to storage. Two of the computers which the plaintiff had purchased new were sold for $1,000. He retained two of the other new computers. The balance of the equipment was sold to a computer shop for $1,000.
The Defendant’s case:
Dayal does not pretend that the business was successful, that it achieved takings of the order said to be represented to the plaintiff, that it had the capacity to become profitable with the addition of food and beverage service or that the computers were all new. Indeed, his evidence was that the takings of the business were only of the order of $50 per day, the business ran at a loss, the computers had been bought at auction and some of them did not have registered licences[22]. On his evidence, there were five unlicensed computers but he claims to have bought licences for each of those and provided invoices to the plaintiff. He says that matters were disclosed to or known by the plaintiff. He denies making representations with respect to the potential for increased income from the selling of food and beverages. As to the transfer of the lease, he says that was to be a matter to be attended to between the plaintiff and the landlord.
[22] T 574
His evidence is that the plaintiff and Mr Small checked the equipment before the balance of the purchase price was paid. He also says that the plaintiff had more than ample opportunity to check the assets of the business, observe the level of custom and, if he had wished, contact Dayal’s accountant to confirm the financial position of the business[23].
[23] The plaintiff, for his part, said that Dayal had not authorised him to speak to the accountant and that
It is, at least on the face of it, improbable that a person in the plaintiff’s position would agree to purchase a business for $51,111 in light of the facts which Dayal contends were known to him. Two explanations were offered by Dayal. One was that the plaintiff told him that he was not concerned about losses because he could use them to reduce his tax. It is not immediately clear why an employed doctor, with no business dealings otherwise, would purchase a certain generator of actual losses in order to obtain tax relief. It was not put to the plaintiff in cross-examination and Ms Meenaxi decided against seeking to further cross-examine the plaintiff. I do not accept Dayal’s evidence in that regard.
The other explanation, on the defendant’s case, was that the plaintiff, far from being a naïve investor in what he was duped into believing was a successful business (or even a reckless investor who was prepared to risk making losses which could be used to reduce tax) was a person who lent himself to a conspiracy to hand possession of the shop to the landlord.
The lease, pursuant to which the shop was occupied, was originally executed between GoodLuck and a former landlord, namely, Butterfly Corporation Pty Ltd (Butterfly). Dayal’s evidence was that relations with Butterfly had generally been cordial. With subsequent changes of ownership however, CBD Property Developments Pty Ltd (CBD) became the landlord and there were disputes between CBD and Dayal relating to matters including the payment of rent, the use of car parks and the maintenance of air conditioning within the leased premises. It would appear from the evidence that Dayal may have had some reason to complain, at least in respect of the accuracy of some of the claims for outstanding rent.
Dayal characterises CBD’s conduct in relation to these disputes as evidence of pressure being brought to bear on him to vacate the shop so the landlord could lease the premises to another at a higher rent. It was put to Mr Naug, of CBD, that he was subjecting Dayal to mental torture[24]. Dayal claims that it was in this context that he came to know the plaintiff. He claims that, rather than being a person who attended the shop premises to use the internet, the plaintiff was introduced to Dayal by the landlord as someone who wanted to buy his business. His evidence paints a picture of the plaintiff doing his best to bring Dayal into his confidence, so as to persuade Dayal to sell the business to him and relocate elsewhere. On his case, he was being pressured or induced, on two fronts, to leave the premises.
[24] T 510-511
The alleged conspiracy is not, however, limited to the plaintiff and the landlord. It is also claimed that Mr Small became friendly with the plaintiff and has lent himself to the conspiracy. Dayal points to the fact that he and Mr Small had their own dispute, to suggest that Mr Small’s evidence to this Court was a case of perjury.
That the plaintiff in these proceedings engaged the same solicitors who had acted for the landlord is pointed to as evidence of the solicitor’s involvement. Dayal’s evidence was that the solicitor made threats in 2004[25]. He also points to applications which the plaintiff made in these proceedings, as well as other proceedings brought against him, as part of the pressure being brought to bear upon him, pursuant to the conspiracy[26].
[25] T 639
[26] T 640
Pooja’s evidence was that she did not “confirm” the alleged misrepresentations.
Conclusion on Misrepresentations:
Whether the plaintiff was induced, by misrepresentation, to pay $51,111 to buy a near worthless, loss-making business, or whether he induced the vendor to accept $51,111 for it, because he was involved in a conspiracy designed to deliver possession of the shop premises to the landlord, ultimately turns on questions of credit. In this regard, I have given consideration to both the content of the evidence and to my assessment of the manner in which it was given.
There are some questions which are raised on the plaintiff’s case: why would a genuine investor, proposing to pay $51,111 for a business, not undertake due diligence, beyond questioning the defendants and their employee, to verify the value of the business? Why would such an investor not engage appropriate advisors, including legal advisors, to protect his interests in such a transaction? Why would a genuine investor not have at least carried out a proper inspection of the computers and other equipment to determine their true state, prior to completing the transaction? Why would such an investor not have been put on further enquiry as to the level of patronage and the ability to generate income to the level alleged to have been represented (particularly having regard to the nature of the business and his opportunity to inspect its operation from time to time)? Why would such an investor enter into a contract which did not record important representations on which he was relying? This may suggest that the plaintiff, although educated, was, in matters of business, either naïve to the point of foolishness, or is not telling the truth.
The defendants’ conspiracy theory, on the other hand, is not without its own difficulties. It invites the Court not only to conclude that the plaintiff has given false evidence, but also that false evidence has been given by the plaintiff’s cousin (Nasir), Mr Small, and the managing director of the landlord, Mr Naug. It also reflects upon the plaintiff’s solicitor, who was neither a party to, nor a witness in, the proceedings.
The plaintiff’s evidence, while not strong on some matters of timing and detail, was certain with respect to the substance of the representations which induced the purchase. He presented as a credible witness and his evidence withstood lengthy cross-examination. I am satisfied that his lack of due diligence was the result of naivety rather than a symptom of the alleged conspiracy.
The plaintiff’s cousin gave evidence by telephone. I was cautious about the weight to be attributed to his evidence, because of his relationship with the plaintiff. I am also mindful that I did not get the chance to observe him in the witness box. I did not however, find him to be an unsatisfactory witness. He attested to similar representations being made to him by Dayal during his visits to the business[27].
[27] See Exhibit 30
Mr Naug, from CBD, gave evidence in what appeared to be a straightforward and credible way. He denied the alleged conspiracy to obtain possession of the shop. Indeed, he said that he had never met the plaintiff until after the sale[28].
[28] T 515
Mr Small was not the most impressive of the plaintiff’s witnesses in relation to the manner in which his evidence was given. I approached his evidence with some caution, given that he was admitting to having lied in the past (to the plaintiff) and having had a dispute with Dayal. The content of his evidence however, did not suggest that he was simply falsely corroborating the plaintiff, as part of the alleged conspiracy. Indeed, he did not support the pleaded allegation that he confirmed each representation said to have been made by Dayal. His admissions were more limited; in particular, he said that he “shied away” from giving direct answers to questions about the income of the business[29].
[29] T 300
It is true that Dayal had disputes with Mr Naug (about the payment of rent and other issues) and with Mr Small (concerning his services) and ultimately, with the plaintiff (concerning the sale of the business). The fact of these disputes does not compel the conclusion that they were involved in a conspiracy to purchase the business and hand possession of the shop back to the landlord. Similarly, the fact that other legal proceedings may have issued and that the plaintiff, in these proceedings, has made interlocutory applications, does not lead to a conclusion that Dayal is the victim of an ongoing conspiracy.
The conspiracy theory has some unlikely aspects. It is a conspiracy for the alleged “victim” to be paid $51,111 for a loss-making business of, it appears, little value. While the plaintiff is now seeking to recover those monies, it is unlikely that someone would knowingly pay a substantial sum in reliance on the prospect of recovering it in subsequent litigation. The suggested motive was that of the landlord, who allegedly wished to be able to re-let the premises at a higher rent. Even if it is accepted that GoodLuck’s rent was below market (which was not proved), the rent was due to be reviewed to market, in any event, on the expiration of the initial term on 31 August 2005[30]. At best, the landlord, in recovering possession in mid-2004, was bringing forward the opportunity to obtain a market rent by a little more than one year, yet the amount paid to purchase the loss-making business was more than twice the annual rent pursuant to the lease.
[30] See Exhibit 43, clause 8.1 of the ‘Reference Schedule’ and clauses 6.4 and 6.5 of the Lease
I found Dayal to be an unconvincing witness. His answers were, at times, evasive or non-responsive. Indeed, he was, at times, rebuked by Ms Meenaxi. His evidence, in part, went to matters beyond those which had been put to the plaintiff. Even making due allowance for some language difficulties and his rather excitable personality which, at times, led him to adopt an assertive or aggressive tone, he did not give the impression of a witness consistently giving evidence in a straightforward and credible way, particularly in cross-examination, including cross-examination as to the alleged sublease discussed further below.
The same observations do not apply to the manner in which Pooja gave evidence, but I do not accept her denial of any relevant involvement in confirming her husband’s representations. Pooja’s evidence was that even though she was the director of GoodLuck, it was Dayal who really ran the business. He was the decision maker and she, while always with him, followed in his footsteps[31]. It is probable that Pooja was influenced by Dayal and that she confirmed to the plaintiff the truth of material misrepresentations, in substance[32] as the plaintiff attested.
[31] T 732
[32] As noted, the plaintiff’s evidence was not strong on matters of timing and detail. For example, his
The credibility of the defendants was also affected by the attempt to rely upon a “Deed of Sublease of Premises and Business”, bearing the signatures of Dayal and Pooja and the execution date of 1 January 2003 but which, I am satisfied, was of recent invention. That is discussed further below.
I find, on the balance of probabilities, that the plaintiff was induced to enter into the purchase on the basis of representations made by Dayal which, in material respects, were confirmed by Mr Small and by Pooja.
I find that Dayal made representations to the effect described in paragraph [10] above and, in substance, as pleaded in paragraph 6(a) to (h) of the amended statement of claim. The subject matter of paragraph 6(i) of the amended statement of claim related to an arrangement as to how rent should be paid and is not properly characterised as a representation inducing entry into the contract.
There are some aspects of those representations which require discussion. In the course of discussions, reference was made to the defendant’s desire to concentrate on the ‘kiosk’ business (for which the shop was, in part, being used). I accept that was part of the defendant’s business. I also accept that it may have been at least part of the motivation for selling the internet café business. That is consistent with the evidence of Pooja[33] and Mr Small[34]. In the context of the discussions with Mr Karam, however, it was used as the explanation for the motivation to sell what was otherwise falsely represented to be a successful and profitable business.
[33] T 754, ll 16-19
[34] T 301, ll 45-49
The representation that the vendor had a lease of the property, with an option, which could or would be assigned or transferred to the plaintiff upon purchase, carries a number of representations. It represents that there was then a subsisting lease with an option for renewal. That was true. It also represents a then intention to assign or transfer in the future and that there was a right to do so or at least a reasonable basis for making the promise to do so[35].
[35] As to promises of future matters or statements of opinion see The Law of Torts: Fleming: 9th ed
It might be that, at the time of making that representation, Dayal intended to assign the lease. Pursuant to the terms of the lease however, there was a prohibition on doing so without the consent of the lessor. While clause 32.2 provided that consent could not be unreasonably withheld, that was subject to certain preconditions. At the time the representations were made and the contract entered into, the lessor had not been approached about the matter, far less granted its consent or indicated that it would do so. In the circumstances, the assertion of a right to assign or transfer, without qualification, was false and was made at least recklessly[36]. Further, there was no reasonable basis to represent, in an unqualified way, that the lease would be assigned or transferred.
[36] The provisions of the lease being within the means of knowledge of Dayal
The representations as to the potential to increase profit by exercising an approval to expand the business was false (and known to be false), with respect to the existence of an approval and the statement of opinion as to future profitability was not held and was one for which, in any event, there was no reasonable basis.
The representations otherwise, concerning the success of the business, its profitability, the age of its computers and equipment and the licensing of each of the computers were false and known to be false at the time they were made. In relation to the licensing of the computers, I find that not all were licensed and I accept the plaintiff’s denial of the suggestion that Dayal provided him with the invoices evidencing the purchase of licences[37].
[37] T 249-250
As to Mr Small, I find that, while he may not have made specific representations as to the level of income or profit, he did, pursuant to his instructions, confirm, in substance, misrepresentations that the business was successful, that there was potential for it to be more successful and that the computers were new and licensed[38].
[38] His evidence that, at the time, he believed the computers to be licensed does not affect the liability of
Insofar Pooja is concerned, I find that she made representations confirming the things Dayal had represented with respect to the successful nature of the business, its profitability, and the state of the computers[39]. Those representations were made fraudulently in the sense that they were either made knowing them to be false or made with reckless indifference as to their truth.
[39] See Karam T 39-40
I am satisfied that the representations were made to induce the plaintiff to enter into the purchase and that, in purchasing, the plaintiff was so induced.
Liability for Misrepresentations
The plaintiff sues each of the respondents for fraud and also for misleading or deceptive conduct pursuant to s 52 of the Trade Practices Act.
Given the above findings, both Dayal and Pooja are liable for inducing the plaintiff to purchase on the basis of fraudulent misrepresentations. The plaintiff claims against GoodLuck on the basis that, in so doing, Dayal and Pooja were acting as the servants or agents of GoodLuck. Similarly, the plaintiff claims that GoodLuck committed a contravention of s 52 of the Trade Practices Act for which Dayal and Pooja were responsible, and seeks relief pursuant to s 82[40].
[40] The lease disclosed that it was acting as trustee for the GoodLuck Trust No. 2, but nothing turns on
GoodLuck was the named lessee of the shop premises and the entity which carried on business under the style “Loungetec Internet”. Pooja was the sole director of GoodLuck. The evidence demonstrates that Dayal was the decision-maker and, effectively, the directing mind of GoodLuck, with the support of Pooja. The allegation, in the amended statement of claim, that Dayal was a duly authorised officer and agent on behalf of GoodLuck was admitted in the amended defence[41].
[41] Paragraph 2 of the amended defence purports to admit paragraphs (a) and (c) of paragraph 2 of the
The defendants assert that, at the relevant time, Dayal was conducting the business, the subject of the contract, in his personal capacity rather than on behalf of GoodLuck. It was said that GoodLuck had taken a loan of $51,000 in September 2002 to run the internet and café business, but was unable to repay the loan within the agreed period of three months. It was said that in January 2003, a “Deed of Sublease of Premises and Business” was entered into pursuant to which, in consideration of the amount previously advanced, there was a sublease of the premises, and a transfer of the assets and goodwill together with the right to conduct the business in the name or style “Loungetec Internet Services” until 31 August 2005. While in his evidence, Dayal said that it was one of his companies[42] which advanced the monies[43] and was to take over the premises and run the business[44], the sublease document named Dayal personally as the sublessee.
[42] Referred to in evidence as “Dayal and Sons International Pty Ltd”, which was probably a reference[43] Exhibit 53 shows a $51,000 withdrawal from the account of Dayal and Sons International[44] T 550-551
The sublease document came to light relatively late. It was not one of the many documents which the defendants chose to place before the Court in the context of earlier applications in the proceedings[45]. It was not entered on the internet site maintained by the defendants and which otherwise contained documents of relevance to the proceedings[46].
[45] T 682
[46] T 681
Although he said he did not show the sublease document to anyone[47], Dayal claims to have discussed it and obtained verbal consent from a representative of Butterfly[48]. No representative from Butterfly was called. That owner subsequently sold to another company (Lake Trend) which, in turn, sold to CBD. Mr Jorgensen’s evidence was that when Lake Trend bought the property it obtained a copy of the leases that were currently in place, but was not provided with any sublease between GoodLuck and Dayal.
[47] T 670
[48] T 552-553
When the sublease was referred to in the evidence-in-chief of Dayal, Ms Meenaxi informed the Court that she did not want to tender the document[49]. The document was ultimately called for and tendered by counsel for the plaintiff.
[49] T 557
Mr Harris, a chartered accountant, was called by the defendants. He was, at all material times, the accountant for GoodLuck and the Mansukhani family in their business dealings. His evidence was that GoodLuck was set up with the intention of being the trustee of a series of trusts. He produced a profit and loss statement for the “GoodLuck Trust No. 2”, dated 24 January 2005, for the period from 1 July 2003 to 30 June 2004. It showed a net loss of $104,279.82 which, he said, primarily related to the internet café business. That was the business which, on the defendants’ case, was then being operated by Dayal, rather than GoodLuck. The profit and loss statement covered all of the internet activities, including the kiosk business. Asked, in cross-examination, whether he recognised the sublease agreement, he said that he had never seen it up until about one month prior to the commencement of the trial[50].
[50] T 739
In the circumstances I am satisfied, on the balance of probabilities, that the sublease document is a recent fabrication, designed to deflect the liability from GoodLuck. I am satisfied that the true tenant of the premises and proprietor of the business was GoodLuck and that GoodLuck is liable for the fraudulent misrepresentations made by its agents, Dayal and Pooja, (who were the directing minds of the company) and by Mr Small, who was instructed and authorised to make representations to the plaintiff.
Similarly, GoodLuck has, I am satisfied, engaged in misleading or deceptive conduct within the meaning of s 52 of the Trade Practices Act and that Dayal and Pooja were responsible for that contravention. Pursuant to s 82, the plaintiff is entitled to recover loss or damage by that conduct as against the defendants.
Quantum
The plaintiff claims damages, both in fraud and for the purposes of s 82 of the Trade Practices Act, calculated by reference to the position the plaintiff would have been in but for the misrepresentations or misleading or deceptive conduct. That is an appropriate measure of damages in tort and for the purposes of s 82. But for the representations and conduct, he would not have purchased. By reason of the purchase, the plaintiff claims to have lost the monies paid to purchase the business and additional computers, less monies realised upon the sale of the business assets. He also claims for certain expenses he incurred in the brief period the business operated under his ownership (against which he is prepared to bring to account approximately $200, being income he received) together with removal and storage costs.
The plaintiff closed the business, vacated the shop and removed the assets of the business upon being informed, by the landlord, that the lease with GoodLuck had been terminated. There was debate about the breaches relied upon to terminate the lease, particularly as they related to the payment of monies. It is unnecessary for me to go into the detail of that dispute. I note that one of the grounds for termination related to a breach of clause 32 of the lease. It would appear that clause was breached, at the least by the lessor parting with possession of the lease premises (to the plaintiff). In any event, the plaintiff had no right, as against the landlord, to assert a right to occupy the shop. The plaintiff did not have the benefit of a completed assignment or transfer of the existing lease, nor the benefit of any new lease with the landlord. Even if the plaintiff had such a right or the ability to obtain such a right[51], it would have been reasonable, given the loss-making nature of the business, for him to mitigate his loss by closing the business and forgoing, or desisting from obtaining, any such right, so as to obviate any ongoing liability to pay rent.
[51] There was evidence from the plaintiff (T 215) of a verbal indication from the landlord, at one stage,
I am satisfied that the value of the business, as purchased, lay in the value of the chattels. I accept that those chattels had a value of $1,000, being the amount which was, in fact, realised upon their sale to a computer shop[52]. As to the further four computers purchased by the plaintiff for the purposes of the business, two of those have been retained. The plaintiff makes no claim in respect of the retained computers. Insofar as the other two computers are concerned, the plaintiff incurred a purchase cost of $2,200, of which $1,000 was recovered upon their subsequent sale to a computer shop at an arms length transaction. I accept that transaction as evidence of the value of the then used computers. The net loss, in this regard, was $1,200.
[52] T 71
The other expenses incurred during the plaintiff’s ownership of the business were as follows:
§ $140.00 for internet connection;
§ $105.20 for registration of business name;
§ $380.75 for electricity;
§ $1,711.05 being money paid to Dayal on account of rent.
In addition to those, expenses were incurred in removing the equipment from the shop and storing it. It was initially stored at a commercial storage business and was subsequently moved to the plaintiff’s unit, so as to obviate further storage costs. The two moves were carried out by the plaintiff’s cousin, Nasir, for which he was paid $500 and $460 respectively (inclusive of his costs and labour). The commercial storage costs were $484.
I am satisfied that the expenses claimed by the plaintiff were incurred and reasonably so.
The total quantum of the plaintiff’s loss by reason of entering upon the purchase (taking account of $200 by way of income) is $55,092.
It was pointed out that, pursuant to s 82 (1B) of the Trade Practices Act damages may be reduced where the loss or damage is suffered partly as a consequence of the claimant’s failure to take reasonable care. A deduction under subsection (1B) however, can only be made where a number of cumulative elements are satisfied, one of which is that the defendant did not intend to cause the loss or damage and did not fraudulently cause the loss or damage. Those conditions are not met in this case and so it would be inappropriate to reduce the claim for loss or damage. Similarly, it is not a defence to an action for deceit, that the plaintiff was negligent or foolish in relying on the misrepresentations or had an opportunity to verify matters[53].
[53] The Law of Torts: Fleming: 9th ed, pp 701-702
I give judgment for the plaintiff against the defendants in the sum of $55,092.00 together with interest, at 9% for 14 months, in the sum of $5,784.65.
the plaintiff’s request for financial figures was met with a response from Dayal to the effect that no
financials were available because no tax returns had yet been prepared for the business.
recollection of the number of discussions with Pooja prior to the payment on 6 February is unlikely to
be reliable, given that she had only returned to the country on 4 February.
p 697, as to misleading or deceptive conduct see s 51A
the principal for authorising him to make representations which the principal knows to be false. See
The Law of Torts: Fleming: 9th ed at 700
that in relation to the liability of GoodLuck to the plaintiff.
amended statement of claim and to deny subparagraph (b) on a stated basis. That basis, however,
seems more applicable to subparagraph (c) than subparagraph (b) of paragraph 2 of the amended
statement of claim. It would seem that there has been a typographical error and I approached the
pleadings on the basis that the allegation that Dayal managed the business on behalf of GoodLuck
is denied on the basis stated in paragraph of the amended defence.
to Dayal and Sons International Investments Pty Ltd.
Investments Pty Ltd
of a willingness to transfer the lease
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