Keys Consulting Pty Ltd v CAT Enterprises Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2018 0027

KEYS CONSULTING PTY LTD (ACN 069 620 686)	First Applicant
and
ANTONIO SCATURCHIO	Second Applicant
v
CAT ENTERPRISES PTY LTD (ACN 100 325 460) & ORS (according to the attached Schedule)	Respondents

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JUDGES:	MAXWELL ACJ, NIALL JA and MACAULAY AJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	30 October 2018
DATE OF JUDGMENT:	19 June 2019
MEDIUM NEUTRAL CITATION:	[2019] VSCA 136
JUDGMENT APPEALED FROM:	[2017] VCC 1661 (Judge Macnamara)

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CONTRACT – Misleading or deceptive conduct – Sale of business – Whether representations induced entry into agreement – Measure of damages – Whether judge erred in valuing business at nil – Whether judge erred in deducting post-sale benefit – Onus on purchaser to establish value at date of sale – Appeal allowed – Damages award set aside – Australian Consumer Law (Competition and Consumer Act 2010, sch 2) ss 18, 236, 237, 243.

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APPEARANCES:	Counsel	Solicitors
For the Applicants	Mr D J Williams QC with Mr R L Moore	McNab McNab & Starke
For the Respondents	Mr D G Robertson QC with Mr A W Sandbach	Goldsmith Lawyers

MAXWELL ACJ
NIALL JA
MACAULAY AJA:

Introduction and summary

In July 2013, Keys Consulting Pty Ltd (‘Keys’)[1] sold a business to CAT Enterprises Pty Ltd (‘CAT’).[2] A dispute about that sale was determined by judgment in the County Court on 5 February 2018, following the publication of reasons for judgment, in two parts, in late 2017 and early 2018.[3] From that judgment the applicants sought leave to appeal.
[1]The first applicant.
[2]The first respondent.
[3]Reasons for findings concerning liability were published on 16 November 2017: Keys Consulting Pty Ltd v CAT Enterprises Pty Ltd [2017] VCC 1661 (‘Liability reasons’). Following a further hearing on 12 December 2017 on the appropriate relief to be granted, reasons concerning the remedies to be granted were published on 24 January 2018: Keys Consulting Pty Ltd v CAT Enterprises Pty Ltd [2017] VCC 1912 (‘Remedy reasons’).

Since around the mid-1990s, Antonio (Tony) Scaturchio[4] had conducted a business installing and removing signs for real estate and other commercial purposes within the metropolitan area of Melbourne. He conducted that business through the medium of several companies which he controlled, one being Keys and another being Sign Install Pty Ltd (‘Sign Install’).
[4]The second applicant.

Most of the sign installation work was done for an advertising firm, Briner Ads Pty Ltd (‘Briner’). Keys was the contracting party with Briner but Sign Install carried out much of the work on Keys’ behalf.

Keys undertook two types of sign installation work for Briner. One type was residential real estate signage (‘residential signage’); the other was general commercial signage (‘commercial signage’). The commercial signage often involved larger signs and more complex installations than was required for the residential signage.

Keys was not Briner’s only installer of signs. For the commercial signage, there were two or three other contractors that Briner used regularly. Generally speaking, Briner would seek quotations for a particular job and appoint an installer on a job-by-job basis. Keys had no ongoing contract with Briner, either in writing or orally, for forward commercial signage work. Nevertheless, it had been engaged by Briner over many years as one of its select contractors.

For the residential signage, by 2011 Briner had set up a system under which it allocated discrete zones within the Melbourne metropolitan area to particular sign installation contractors, including to Keys. It did so by appointing a company, Ace Sign Solutions Pty Ltd (‘Ace’), as its exclusive contractor for residential signage for a period of five years (that is, to March 2016). Ace was owned and controlled by the companies and individuals to whom Briner regularly assigned its residential signage work. Under an agreement between the contractor/shareholders in Ace, each contractor was entitled to carry out residential signage for Briner in a particular zone (‘Ace agreement’). Keys had Zone A, consisting of a number of central, northern and western postcode districts in metropolitan Melbourne.

In about mid to late 2012, Mr Scaturchio decided to sell Keys’ sign installation business. After advertising the sale through a business broker, and following a period of negotiation, Keys sold its business to CAT under two asset sale contracts, each made on 25 July 2013. The shareholders and directors of CAT were Craig and Julie Trigg. Mr and Mrs Trigg were parties to the two contracts as guarantors, whilst Mr Scaturchio was party to both for the purpose of giving various warranties.

A fuller description of the two contracts will be given later, but under the first of them — the first contract — and in accordance with its terms, $300,000 of the $450,000 contract price was paid by CAT in July 2013 with the balance of $150,000 not due until 29 July 2015. Under the other contract — the second contract — again, in accordance with its terms, the whole contract price of $200,000 was deferred for payment until 29 July 2015.

CAT took possession of the assets under both contracts and commenced operating the sign installation business from about August 2013. Under the terms of the two contracts — in a manner that will be more fully explained below — Mr Scaturchio and Keys remained involved in certain parts of CAT’s sign installation business and were to provide training to CAT in different aspects of it.

After a relatively short period of time, both Keys and CAT became unhappy with what had taken (and was taking) place. Keys sued CAT in the County Court by writ filed on 18 June 2014 and CAT responded with a counterclaim.

Ultimately, the judge upheld CAT’s contentions that it had been induced to enter the two contracts by misleading representations made by Mr Scaturchio, on behalf of Keys, in breach of s 18(1) of the Australian Consumer Law (‘ACL’).[5] Having also found that the business (or, more accurately, the components of it sold under each of the two contracts) was worthless, the judge relieved CAT of its contractual obligation to pay the balance of the purchase price due (and unpaid) under the first contract, and the whole of the purchase price due (and unpaid) under the second contract. In addition, the judge awarded CAT damages as compensation for the amount it had already paid under the first contract, reduced by a sum which — as his Honour said, ‘doing the best I can’— he found was the benefit CAT had received by operating the business from the date of sale to the date of judgment.[6]
[5]Competition and Consumer Act 2010 (Cth) sch 2 (‘ACL’).
[6]Remedy reasons [41].

Consistently with those findings, the judge dismissed Keys’ claims that it was entitled to the balance of the purchase price under each of the two contracts or any other amounts of money in reliance upon their terms.

Relevantly, the judge made orders as follows:

1.[Keys’] claim is dismissed with costs, including all reserved costs except the costs reserved on 21 May 2015 (as to which there is no order as to costs), to be taxed on the standard basis.
2.There be judgment for [CAT and Mr and Mrs Trigg] against [Keys and Mr Scaturchio] for the following relief:
(a)[Keys and Mr Scaturchio] pay [CAT] damages pursuant to s 236 of the ACL in the sum of $217,032.86 together with interest pursuant to statute thereon in the sum of $78,268.59, a total sum of $295,301.45;
(b)stay of payment of the sum of $295,301.45 until 4.00pm on 5 March 2018;
(c)[the first contract] be varied pursuant to s 243(b) of the ACL by substituting for the amount of $150,000 in the definition of ‘Final Payment’ in clause 1.1 thereof the amount of zero and for the amount of $450,000 in the definition of ‘Purchase Price’ in that clause the amount of $300,000;
(d)[the second contract] be varied pursuant to s 243(b) of the ACL by substituting for the amount of $200,000 in the definitions of ‘Final Payment’ and ‘Purchase Price’ in clause 1.1 thereof the amount of zero in each case and for the amounts of $75,000 and $1,500 in clause 7.1 thereof the amount of zero in each case;
(e)[an order in respect of the removal of a caveat]; and
(f)[Keys and Mr Scaturchio] pay the costs of [CAT and Mr and Mrs Trigg], including all reserved costs except the costs reserved on 21 May 2015 (as to which there is no order as to costs), to be taxed on the standard basis save for the costs of the application for the removal of caveat. [7]

[7]His Honour’s orders made on 5 February 2018, incorporating the definitions used in these reasons.

Keys and Mr Scaturchio sought leave to appeal his Honour’s orders. Critically, they sought the setting aside of orders 1, 2(a) and 2(c) above (together with other consequential orders dealing with the stay and costs) and, instead, an order for judgment in the favour of Keys and Mr Scaturchio for $150,000 plus interest and costs. According to their application for leave to appeal, the applicants did not seek to set aside the order in paragraph 2(d) that deals with the remedy granted in relation to the second contract. We will say more about this below.

There were essentially three proposed grounds of appeal. The detail of each ground will be set out more fully below but, in broad compass, they were as follows:

·ground 1 alleged that the judge erred in finding that the particular representation said to have induced entry into the first contract was made before the parties agreed to the terms of that contract. In other words, it was a challenge to the finding of causation underpinning the judge’s conclusion that the relevant misrepresentation caused CAT to suffer loss and damage by entering the first contract;
·ground 2 challenged the judge’s assessment of damages in the sum of $217,032.86 in favour of CAT, principally on the basis that the evidence was inadequate and not sufficiently reliable to establish any loss; and
·ground 3 challenged the judge’s finding that no value had been conferred upon CAT under the second contract resulting in the order that relieved CAT of having to pay any of the contract price.

In short, the first proposed ground was a limited challenge about the timing of the misrepresentation alleged to have induced CAT’s entry into the first contract — no challenge was made to the finding that the representation was made or that it was false. The second and third proposed grounds focussed on the correctness or otherwise of the relief granted in consequence of the misrepresentations held to have induced CAT to enter into the first and second contracts respectively. As will be seen below, the two contracts are closely related and it is not easy to untangle the relief granted for one from the relief granted for the other.

In summary, for the reasons that follow, we would refuse leave to appeal on ground 1, grant leave to appeal on grounds 2 and 3, and allow the appeal. Put succinctly, Keys fails on its challenge to the judge’s finding that its misrepresentation induced CAT’s entry into the first contract, but succeeds on its challenge to the award of damages made against it (except for the sum of $17,032.86, which it had conceded). Otherwise the orders made by the judge stand.

The claim and counterclaim

To understand the arguments on the application, it is necessary to say something further about the subject matter of the two contracts, the claim made by Keys and Mr Scaturchio and the counterclaim advanced by CAT and the Triggs.

The first contract was negotiated over a period spanning several months. Mr Scaturchio had advertised the sale of Keys’ business with an asking price of $500,000 (including the transfer of a truck). After contacting the business broker on or before March 2013 and undertaking some further negotiations, on 23 May 2013, Mr Trigg, on behalf of CAT, made a written offer to purchase the business for $370,000. The offer was contained in a document signed by Mr Trigg headed ‘Binding Heads of Agreement between Vendor and Purchaser’, naming Sign Install as vendor and CAT as purchaser. The document was in the form of a printed agreement, with relevant information completed in handwriting in designated spaces, together with some additional typed special conditions.

The proposed special conditions included:

·The purchaser is purchasing the current Residential Contract for sign installations and ongoing commercial work as per current Sign Install operations.
·The vendor will not enter into any other separate arrangement with Briner Ads that would compromise the purchaser from future business in any way.
·All commercial work as currently given by Briner Ads to Sign Install will be passed to the purchaser.

The special conditions also provided for the vendor to provide the purchaser with two weeks’ training for the residential sign installations. Payment of the contract price was to be over a two year period with the first $300,000 to be paid on signing, and the balance at ‘final settlement’ in two years’ time. Although the purchaser was to assume the operation of the residential signage work from the outset, the vendor was to continue to undertake the commercial signage work until the final settlement. The purchaser was to invoice Briner for the commercial installation fee and then remit 65 per cent of it (plus costs of materials) to the vendor while the arrangement lasted. Meanwhile, the vendor was also to train the purchaser in all aspects of the commercial signage work over the period of two years on ‘a subcontract basis’.

Keys did not accept CAT’s offer made on 23 May 2013. But, after further negotiation on 11 June 2013, the parties reached agreement on a sale price of $450,000. On that day, the parties executed a modified form of the heads of agreement document (‘the HoA’).

The HoA formed the basis of the first contract and was subsequently signed by the parties on 25 July 2013, after having been prepared by solicitors engaged for the task. Compared to Mr Trigg’s original offer made on 23 May 2013, the HoA reflected agreed changes to the sale price (from $370,000 to $450,000), the balance due at final settlement (from $70,000 to $150,000) and the percentage of the value of the commercial signage invoices to be remitted to Keys (from 65 per cent to 70 per cent).

In addition, the HoA included handwritten notes around the first of the special conditions extracted above. Against the typed words ‘current Residential Contract’ was a handwritten notation ‘ZONE (A & S)’. At the end of the sentence, after the typed word ‘operations’, were handwritten words ‘… and including ~~Peninsula residential~~ PENINSULA AREA’.[8]
[8]Capitalisation and markings as in original.

The reference to ‘Peninsula Area’ introduces the topic relevant to the first proposed ground of appeal. At some point during the negotiations leading to entry into the first contract, Keys’ broker informed Mr Trigg that Briner had made available to Keys (presumably through the mechanism established by the Ace agreement) an additional residential signage zone described as the ‘Peninsula run’.[9] He told Mr Trigg that ‘for another $50,000’ the area could be included in the assets sold to CAT under the first contract.
[9]A reference to the Mornington Peninsula south of Melbourne.

Later, Mr Trigg and Mr Scaturchio discussed the issue directly. The judge found that Mr Scaturchio falsely represented to Mr Trigg that the turnover of the Peninsula run was between $100,000 to $120,000 annually, whereas, on the available evidence, it was more likely within the vicinity of $50,000 to $80,000. No challenge is proposed to this finding.

The judge also found, contrary to the submissions of Keys, that the representation made by Mr Scaturchio about the turnover of the Peninsula run was made on or before 11 June 2013 (that is, on or before the date the two parties agreed to the sale price of $450,000 and signed the HoA). CAT claimed, and the judge accepted, that this representation induced it to agree to the $450,000 sale price. Keys argued before the judge, and maintained on its application for leave to appeal, that the statement about turnover was made after the execution of the modified HoA, and that the Peninsula run business was simply included in the assets to be transferred to CAT for no additional consideration. On that basis, Keys claimed that the judge erred in finding that the misrepresentation induced CAT’s entry into the first contract. If that is correct, Keys submitted that CAT could not have suffered any loss and damage because of the misleading and deceptive conduct.[10]
[10]ACL s 236.

We will return to this topic when we address ground 1.

The subject matter of the second contract emerged after the parties had settled on the essential terms of the first contract (that is, after 11 June 2013) and while its final terms were being prepared.

Under a written contract of sale made on or about 5 July 2013, Keys acquired from Expert Extensions Pty Ltd (‘Expert Extensions’), another commercial signage contractor of Briner, the ‘contract work of Briner’ previously undertaken by that contractor. Apparently, Briner had experienced difficulties with Expert Extensions and recommended to Mr Scaturchio that he buy it out. Soon after, Expert Extensions agreed to sell its business to Keys for the price of only a vehicle and some tools used in it. No price was paid for the goodwill. Briner allegedly told Mr Scaturchio that Expert Extensions had an annual turnover of work for Briner of between $230,000 and $280,000.

Later in July, Mr Scaturchio offered the former Expert Extensions commercial work to Mr Trigg as a separate component of the Briner commercial signage work and in addition to that which was already included under the first contract. On behalf of CAT, Mr Trigg agreed to buy the former Expert Extensions work for $200,000, payment of which was to be wholly deferred to July 2015. That agreement became embodied in the second contract, executed by the parties on the same day as the first contract.

The judge found that CAT’s entry into the second contract was also induced by a misrepresentation made by Mr Scaturchio on behalf of Keys. On this occasion, the misrepresentation was that Mr Scaturchio told Mr Trigg that by purchasing the Expert Extensions business from Keys, CAT would be acquiring ‘the other part’ of Briner’s commercial signage work. By that means, the judge held that Mr Scaturchio led Mr Trigg to believe that if CAT purchased the Expert Extensions work it would then hold all of Briner’s commercial signage work. This representation was false as there remained a number of other contractors to whom Briner allocated its commercial signage work. Additionally, the judge held that Mr Trigg relied upon the representation when executing the second contract. None of the judge’s findings of fact in this regard are the subject of any challenge.

By the time the trial commenced in March 2017, CAT had been conducting the residential and commercial signage business for over three and a half years, and was continuing to do so in one form or another. The time for CAT to pay the balance of the purchase price under the first contract and the whole of the purchase price under the second contract (both due on 29 July 2015) had come and gone without either payment having been made.

In its claim against CAT, Keys alleged that, by not paying the purchase price instalments, CAT breached the first and second contracts, and it sought payment according to their terms or, alternatively, damages. CAT denied it was bound to make any further payments, alleging that by its conduct Keys had repudiated the contracts and that CAT had accepted those repudiations.

In its counterclaim, CAT alleged that Keys had breached various terms of the two contracts and that each was therefore void ab initio. Those claims were dismissed. CAT further pleaded that Keys had made a number of misrepresentations which amounted to misleading and deceptive conduct in contravention of s 18 of the ACL, causing CAT to suffer loss and damage. As we have identified above, two of those claims were upheld.

On finding that:

·CAT’s entry into the first contract was induced by the false representation that the Peninsula run business turned over between $100,000–$120,000 per year; and
·its entry into the second contract was induced by the false representation that it would acquire the whole of Briner’s commercial signage work if it also bought the former Expert Extensions business from Keys,

the judge proceeded to assess the loss and damage that CAT suffered because of those misrepresentations and fashioned relief to remedy that loss and damage.

Following submissions from the parties on those issues, and as already set out above, the judge ultimately decided to:

·vary the first contract by reducing the balance of the purchase price due in July 2015 from $150,000 to zero (reflected in paragraph 2(c) of the orders);
·vary the second contract by reducing the purchase price due in July 2015 from $200,000 to zero and, also, by reducing to zero various other amounts CAT had agreed to pay for training (reflected in paragraph 2(d) of the orders); and
·award CAT damages of $217,032.86 to compensate it for the fact that it had paid $300,000 (under the first contract) for a business which was found to be worthless, adjusted for the value of the benefit CAT received from operating the business to the date of trial and some other minor elements (reflected in paragraph 2(a) of the orders).

We will return to the topic of the relief granted when we address grounds 2 and 3 below.

Ground 1

The first proposed ground of appeal was as follows:

The learned judge erred in finding that the Peninsula Run revenue representation was made by the applicants before the parties had agreed on the final purchase price of $450,000 for that part of the Business being sold, in circumstances where:
(a)the learned judge made the finding on the basis of speculation and logic;

(b) the speculation was unfounded and the logic was flawed; and
(c) the finding was contrary to the evidence of the only witness who said that the representation had been made, and contrary to the finding as to the date upon which that witness was found to have recorded the representation in his ‘contemporaneous’ notes.

At trial, Keys advanced two reasons why the judge could not be satisfied that the Peninsula run representation had been made before the parties agreed upon the price for the first contract. The first was that, given that Mr Trigg’s last offer before 11 June 2013 had been $370,000, an extra $50,000 to add the Peninsula run would only take the sale price to $420,000, not the $450,000 the parties agreed on that date. This showed, Keys submitted, that the final sale price bore no connection to the addition of the Peninsula run.

The second reason related to a page of handwritten notes made by Mr Trigg recording a discussion he had with Mr Scaturchio and setting out various figures, including ‘$120K’ referable to the Peninsula run. However, the same page also contained figures that related to the second contract. It was, therefore, very likely that the notes were made sometime in July 2013. The page was taken from an exercise book that both parties agreed was used by Mr Trigg to record matters discussed with Mr Scaturchio. Keys argued that the content of the notes, and the date on which they were made, supported Mr Scartuchio’s version that the conversation about the Peninsula run occurred after the parties had already agreed on $450,000 as the sale price.

The judge dealt with these arguments this way:

one may accept that Mr Trigg’s notes record negotiations which he held with Mr Scaturchio in July. The most persuasive point in support of this interpretation is that the notes include annual figures which seem to pertain to the second business sale agreement relative to the former Expert Extensions business, which were not raised until — as Mr Trigg put it — ‘the eleventh hour’, and not in June. Nevertheless, there is no logical reason why the $120,000 figure could not have been part of the discussions in July on the basis that it had been conveyed to Mr Trigg by Mr Scaturchio a month or two previously.
More pertinently, despite his generalised assertion that the addition of the Peninsula Run to the original business sale agreement had no effect on price, Mr Scaturchio (under pressure) admitted that the addition of the Peninsula Run to the deal was ‘a sweetener to get the deal over the line’. Since the last matter to be agreed upon was the price, the inference is that the addition of the Peninsula Run was the quid pro quo for the increase in the offered price.
Again, there would be a logical basis for a $450,000 price based upon Mr Scaturchio’s account, which was not on this point denied, namely that a motor vehicle, part of the original offer and ascribed a notional value of $95,000, had been excluded by agreement between the parties. This, then, would be a notional starting point for negotiations at $400,000. Unsurprisingly, Mr Trigg, by offering $370,000, sought to do a better deal for CAT and himself.[11]

[11]Liability reasons [170]–[172].

In conclusion, his Honour held that the Peninsula run representation was made before agreement on final price and in order to secure that agreement, finding that:

it was made before the parties agreed on the final price of $450,000. It was made, to use Mr Scaturchio’s language, ‘to get the deal over the line’ and was relied on by Mr Trigg and his company.[12]

[12]Ibid [173].

On the hearing of the application before this Court, Keys argued that the judge’s reasoning involved unfounded speculation and flawed logic in finding that there must have been occasion before the handwritten note was made when the Peninsula run was raised between Mr Scaturchio and Mr Trigg.

There was some evidence from Mr Trigg which, if accepted as being reliable, would preclude the conclusion that the Peninsula run representation was made on or before 11 June 2013. Mr Trigg accepted that the reference to the Peninsula run only appeared once in his notes, that the figures of $100,000 to $120,000 were reflected in what were described as his ‘contemporaneous notes’ and that, if a number did not appear in his notes, it was not of significance to him. Most pertinently, Keys relied in particular on the following exchange in the cross-examination of Mr Trigg about the exercise book entries he said he made in July 2013:

COUNSEL FOR KEYS: So it’s the numbers, Tony 350 K and 105 is 30 per cent of that number; Coda 150 K, 15 per cent is 150 is 22.5; Commercial 2[13] and then Penn E 120.[14] You’ve given evidence that this was a conversation with Tony, probably at Tony’s house and you’re writing these numbers down. Correct?
[13]Explained as a reference to the second contract.
[14]Explained as a reference to the Peninsula run and $120,000.
MR TRIGG:Yes.
COUNSEL FOR KEYS: This the first time that you’ve heard of the 120,000 being for the peninsula run, isn’t it? That’s when Tony tells you. Tony tells you, ‘Look, the peninsula run is doing 120 K’?
MR TRIGG:He said 100 to 120.

COUNSEL FOR KEYS:        And you put 120?
MR TRIGG:  I erred on the side of optimism.
…
COUNSEL FOR KEYS:        We understand. That’s the first time he’s told you of 100, 120 at this meeting and that’s why you’ve written it down. That's right, isn’t it? Don’t look at the - - -?
MR TRIGG:Sorry. Well, it hadn’t come up until July, that’s right.

COUNSEL FOR KEYS:        Yes, so you agree with me?
MR TRIGG:  Mm.
COUNSEL FOR KEYS:        So in July 2013 you’ve written down 120, you’ve erred on the optimistic side?
MR TRIGG:Guilty.
COUNSEL FOR KEYS:        That’s what Tony’s told you for the first time and you’ve written it down?
MR TRIGG:100 to 120.

COUNSEL FOR KEYS: In July 2013?
MR TRIGG: Mm’hm.[15]

[15]Emphasis added.

Clearly, if the judge had accepted Mr Trigg’s evidence in that exchange, to the effect that the figure for the Peninsula run had not come up in discussion before July 2013, as being reliable and accurate, he could not have concluded, as he did, that it was discussed on or before 11 June when the price for the first contract was agreed. But that was not the only evidence on the subject.

In other evidence, Mr Trigg had also said that the Peninsula run representation was made before the initial version of the HoA was modified and signed by the parties on 11 June, stating he had been told that for ‘another 50,000 … [s]o 450,000’ he would obtain two residential zones and it would ‘close the deal’. He maintained that it was the making of the Peninsula run representation about the income it brought in that caused him to agree to the figure of $450,000 and that the Peninsula run was offered to him for the purpose of securing his agreement to that figure. Consistently with that evidence, Mr Scaturchio admitted that he had offered the Peninsula run as a ‘sweetener to get the deal over the line’ and that price had been the last thing to be agreed.[16] That evidence appeared to contradict earlier evidence he had given that the Peninsula run had had nothing to do with securing agreement to the price of $450,000.
[16]Liability reasons [48] (not disputed).

Faced with this conflicting evidence, the judge had a choice to make. Either he accepted that Mr Trigg was correct when he said that his notes made in July 2013 recorded the first occasion when the Peninsula run had been mentioned, in which case the representation about its earnings could not have had anything to do with the agreement on price reached on 11 June. Or, he accepted that the addition of the Peninsula run and the representation about its earnings occurred on or before 11 June and procured the agreement as to price, in which case Mr Trigg was mistaken when he said that his July notes recorded the first mention of the Peninsula run.[17]
[17]A third possibility, mentioned on the hearing of the application — that only the fact of the additional run was mentioned to get the deal over the line in June, but the income from it was first discussed in July — seemed to have little support in the evidence and even less to commend it as a matter of plausibility.

There was nothing illogical or speculative about preferring the second of those alternatives, as his Honour did. It simply involved him evaluating the quality of the various pieces of evidence, testing each against the whole body of evidence, asking if there were plausible explanations for any contradictions, and drawing available inferences from primary facts as found.

Plainly, the judge considered that the admission by Mr Scaturchio, as to the representation being a ‘sweetener’, was a candid and cogent piece of evidence.

Looking for an explanation for Mr Trigg agreeing to a purchase price of $450,000, having initially offered only $370,000, the judge observed that Mr Scaturchio, for his part, had never accepted Mr Trigg’s offer as any valid starting point for negotiation. Accordingly, there was no reason to assume that, as at 11 June, $370,000 was a conventional base-line upon which negotiations proceeded. Instead, the judge assumed that by deducting the ascribed value of the truck from the advertised price, the parties commenced with $400,000 as their notional starting point. To that figure, he inferred that the parties had added the $50,000 for the Peninsula run to get to $450,000. That reasoning was both a plausible and logical means of reconciling the evidence.

But whether or not that was the actual mathematical reasoning is of less importance than the persuasion reached by the judge about the probable accuracy of the versions of events given by both Mr Trigg and Mr Scaturchio, specifically that the Peninsula run representation was the statement that clinched the deal on price. Acknowledging the possibility that the Peninsula run representation was discussed twice ― once when price was agreed on 11 June and a second time when the second contract was being discussed in July ― was neither illogical or speculative. Rather, it involved the familiar and valid process of reconciling otherwise conflicting evidence by reference to the degree of persuasion felt about the competing versions using, where necessary, inferential reasoning.

In our view, proposed ground 1 is an ambitious challenge to a finding of fact made, essentially, upon an assessment of the credibility of witnesses in the guise of a contest about the process of logical reasoning. We see nothing in that contest. We would not grant leave to appeal on proposed ground 1.

Grounds 2 & 3

Turning to proposed grounds 2 and 3, the critical remedies ordered by the judge as a consequence of his findings that CAT’s entry into both contracts had been induced by misleading and deceptive conduct and that the business so acquired was worthless, were to:

·vary the first contract so that the overall price was $300,000 (not $450,000) with the result that no further instalment was due (order 2(c));
·vary the second contract so that the purchase price ($200,000) and the amounts due for training ($75,000 and $1,500 respectively) were reduced to zero with the result that nothing was payable under that contract (order 2(d)); and
·order damages in favour of CAT in the sum of $217,032.86 plus interest (order 2(a)).

In doing so, his Honour exercised a discretion to apply remedies drawn from ss 236 (actions for damages), 237 (compensation orders etc on application by an injured person) and 243 (kinds of orders that may be made) of the ACL.[18] The selection of the remedy, or suite of remedies, to apply in a given case will turn on the circumstances and the judge’s view of the best means to fairly compensate or protect the representee from the established misleading and deceptive conduct.[19]
[18]As permitted by s 244 of the ACL.
[19]Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 (Mason P and Priestley JA); Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200, [43] (Allsop P); Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281, 298 (‘Kizbeau’).

The damages were ordered to compensate CAT for having already paid $300,000 under the first contract for a business which the judge found to be worthless. The reason the sum awarded was $217,032.86 and not $300,000 was because his Honour:

·first, found that CAT had derived a benefit of $100,000 from the transaction through operating the business after its acquisition, thereby reducing the prima facie loss of $300,000 to $200,000; and
·secondly, accepted, based upon concessions made by Keys, that there were additional consequential losses totalling $17,032.86.

Ground 2

It will be recalled that, in substance, ground 2 challenged the judge’s assessment of damages in favour of CAT in the sum of $217,032.86. The focus of the challenge was upon the first of the two steps outlined in the previous paragraph.

In more detail, proposed ground 2 was as follows:

The learned judge erred in finding that the respondent should be regarded as having derived a benefit of $100,000 from the transaction and $200,000 should be the measure of the respondents’ damages for misleading and deceptive conduct, in circumstances where the learned judge:
(a) had correctly rejected the calculations of damages provided to him by the respondents as ‘unreliable’;
(b) declined to [find] that the party which was claiming damages, and which could and should have provided the court with sufficient and reliable evidence from which they could be calculated, had failed to satisfy its evidentiary burden;
(c) failed to provide any reasons alternatively, any adequate reasons for making the assessment which he did; and
(d) failed to disclose the path of reasoning by which a finding on a matter of substantial importance was reached.

To better explain the applicants’ contention as expressed in that ground, it is necessary to set out the judge’s reasoning in arriving at the figure to be assessed for damages, in particular the figure of $200,000, after deducting the $100,000 assessed for the ‘benefit’ derived. Before turning to that reasoning, it is helpful to make two general observations about the issues agitated under this ground. The first is that the focus of the ground was confined to the quantification of the ‘benefit’ derived by CAT in operating the business and, in that connection, the question of which party should bear the consequences of any uncertainty about that quantification. Secondly, under this ground, the applicants did not purport to take any issue with the judge’s apparent assumption that the $300,000 paid under the first contract established a prima facie measure of loss.

Early in the remedy reasons, his Honour noted that both parties accepted that in an action under s 18 of the ACL, whereby an applicant had been induced to purchase property or a business, damages are often assessed as the difference between the real value of the thing acquired and the price paid for it.[20] His Honour reminded himself that, in his reasons for judgment concerning liability (‘the liability reasons’), he had accepted that the enterprise sold under the first contract had no value. Accordingly, his Honour continued:

Prima facie, therefore, the entire $300,000 paid by CAT to Keys should be awarded to CAT as damages suffered by reason of Keys’ misleading or deceptive conduct.[21]

[20]Remedy reasons [6], [7], [27].

[21]Ibid [30].

Nevertheless, his Honour accepted Keys’ submission that it would be ‘wrong’ to assess damages without allowing for any benefits which may have been derived by CAT from the transaction.[22] His Honour therefore proceeded to analyse the evidence as to any such benefit.
[22]Ibid [35].

CAT’s discovery of its financial statements and information pertaining to the conduct of its business in the years between acquisition and trial was poor. Neither CAT nor Mr Trigg produced any tax returns for the relevant period.[23] The only financial information referred to by the judge as having been produced by CAT was an undated page of calculations, in spreadsheet form, seemingly produced by Mr Trigg. That spreadsheet commenced with a line ‘CAT income from Briner’, against which was a figure of $520,372.90. After deduction from that sum of various expenses, the spreadsheet showed a resulting loss of $53,263.07.[24]
[23]Ibid [39].
[24]Ibid [36]–[37].

Some 18 months before trial, in answer to a subpoena, Briner had produced various financial records relating to its business with CAT. From the date they were produced, those records were available for inspection by the parties. Upon the opening of the trial in March 2017, counsel for Keys gave to the legal practitioners for CAT a summary, prepared by Keys, of relevant parts of those records. Amongst other things, that summary contained an analysis of the invoices delivered by CAT to Briner between 11 August 2013 and 12 March 2015 for both commercial and residential signage work done for Briner. The summary showed that the total invoiced sum was $859,831.63, substantially more than the income figure appearing in Mr Trigg’s spreadsheet for the same or similar period.

Referring to that evidence, the judge then drew the critical conclusions that led to his assessment of damages in favour of CAT, as follows:

Mr Trigg’s calculations show CAT sustaining a loss of $53,263.07 against invoicing of $520,372.90. It was common ground that there were further billings of approximately $300,000 made by Keys directly to Briner,[25] which had not been accounted for to CAT, with the result that some $105,000 was payable by Keys to CAT, subject to offset entitlements claimed by Keys. It was the allowance for that further $105,000 which, on Mr Sandbach’s calculations, would have led to the surplus in favour of CAT of $52,000 approximately.

Mr Moore, however, drew attention to a folder of ‘Briner documents’ which had been produced upon subpoena from Briner and which were summarised as showing total billings to Briner by CAT of $859,831.63. These documents had been unchallenged by CAT.
In those circumstances, according to Mr Moore, the figures derived by Mr Trigg in the defendants’ Supplementary Court Book at 135,[26] could not be relied upon. Mr Moore noted the evidence from Mr Trigg that there were no tax returns for the relevant years for him or for CAT. In those circumstances, he submitted, the burden of inability to prove should fall upon CAT rather than Keys.
For the reasons already given, I believe the prima facie measure of damages relative to this piece of misleading or deceptive conduct should be $300,000. That figure must be reduced to reflect the derivation of benefits by CAT. I accept that Mr Trigg’s calculations cannot be relied upon. In circumstances where a prima facie measure of damages has been established based upon expert evidence, it cannot be right to conclude that no finding can be made and the defendant counterclaimant’s damages claim on this point should fail based upon the uncertainty.
Doing the best I can, I conclude that CAT should be regarded as having derived a benefit of some $100,000 from the transaction and subject to issues of consequential loss to which I will turn later, $200,000 should be the measure of damages for this first piece of misleading or deceptive conduct.[27]

[25]Under the terms of the first contract, Keys continued to perform commercial signage work on behalf of CAT and the fee was to be split between the two on an agreed percentage. Although, under the contract, CAT was to invoice Briner and remit to Keys its share of the fee, it appears that in practice, at least in part, Keys directly invoiced Briner and remitted CAT’s share to it.

[26]A reference to Mr Trigg’s spreadsheet.

[27]Remedy reasons [37]–[41] (emphasis added).

A number of steps should be noted about his Honour’s reasoning in this passage:

·the judge noted that, whereas Mr Trigg’s spreadsheet calculation commenced with an income figure of $520,372.90, that figure was undermined by other evidence — first, that it was ‘common ground’ that Keys had also made additional billings directly to Briner of $300,000 which Mr Trigg had not accounted for and, secondly, that Mr Trigg’s figures for CAT’s billings were also some $340,000 less than the figures supplied by Briner;
·having also noted that neither CAT nor Mr Trigg had produced any tax returns for the relevant years, the judge therefore accepted that Mr Trigg’s calculations could not be relied upon;
·nevertheless, the judge found that a prima facie measure of damages of $300,000 had been established based upon expert evidence;
·the judge considered the next step was to reduce the prima facie loss by the amount of any benefit CAT had derived from the transaction;
·the judge implicitly accepted there was ‘uncertainty’ about the amount of that benefit, but reasoned that, because prima facie damage had been established, it could not be ‘right’ that CAT should fail on an award of damages because of such uncertainty; and
·without disclosing how it was calculated or from what elements it was derived, the judge concluded that CAT ’should be regarded’ as having derived a benefit of some $100,000, leaving $200,000 as the measure of loss.

With this understanding of the judge’s reasoning, it is now appropriate to review the principles that guide the assessment of damages in a case such as this.

Relevant legal principles
(a) Burden of proof and certainty of proof

The statutory misconduct prohibited by s 18 of the ACL only gives rise to a cause of action for damages if, because of the conduct, a person suffers loss and damage.[28] The statutory actions for relief under ss 236 or 243 of the ACL require proof that the plaintiff suffered (or, in the case of s 243, is likely to suffer) loss and damage. Being an element of the cause of action, the legal burden of proof of that damage lies upon the plaintiff.
[28]ACL ss 18, 236.

In claims for damages, the plaintiff must prove both the fact of loss and the amount of that loss before he or she can recover substantial damages.[29] If a plaintiff fails to prove either of those elements, he or she may recover nominal damages only where the claim is in contract, or the action fails altogether, where it lies in tort.[30]
[29]Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 80 (Mason CJ and Dawson J), 99 (Brennan J), 118 (Deane J), 137–8 (Toohey J); JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237, 241 (Brooking J) (‘JLW’).
[30]JLW [1994] 1 VR 237, 241 (Brooking J).

However, it is well established that a mere difficulty in quantifying damages does not necessarily defeat the plaintiff’s entitlement to a remedy against the wrongdoer. In appropriate circumstances, where some sort of actual loss has been established, the court must estimate the damages as best it can.[31] Addressing a claim for damages for breach of contract, Street CJ in Howe v Teefy[32] said:

The question in every case is: has there been any assessable loss resulting from the breach of contract complained of? There may be cases where it would be impossible to say that any assessable loss had resulted from a breach of contract, but, short of that, if a plaintiff has been deprived of something which has a monetary value, a jury is not relieved from the duty of assessing the loss merely because the calculation is a difficult one or because the circumstances do not admit of the damages being assessed with certainty.[33]

[31]Chaplin v Hicks [1911] 2 KB 786, 792 (Vaughan Williams LJ); Fink v Fink (1946) 74 CLR 127, 143 (Dixon and McTiernan JJ); McRae v Commonwealth Disposals Commission (1951) 84 CLR 377, 411–12 (Dixon and Fullagar JJ) (‘McRae’).

[32][1927] 27 SR(NSW) 301.

[33]Ibid 305–6, quoted in McRae (1951) 84 CLR 377, 411.

However, there is a distinction to be drawn between a situation that does not permit damages to be assessed with certainty, and one in which the plaintiff has simply failed to produce evidence that was otherwise reasonably available. The plaintiff is entitled to have the court do the best it can in the former case, but not in the latter. Where a party is able to produce evidence about loss and damage, they must do so with as much certainty and particularity as is reasonable in the circumstances. This principle is long established.[34]
[34]Ratcliffe v Evans [1892] 2 QB 524, 532–3. See the very helpful analysis of this topic in NCONAustralia Ltd v Spotlight Pty Ltd [No 5] [2012] VSC 604, [281]–[295] (Robson J).

Put succinctly, Devlin J said in Biggin & Co Ltd v Permanite Ltd:[35]

where precise evidence is obtainable, the court naturally expects to have it, [but] where it is not, the court must do the best it can.[36]

[35][1951] 1 KB 422.

[36]Ibid 438.

Along with other statements to the same effect, this principle was addressed and applied by Brooking J in JLW (Vic) Pty Ltd v Tsiloglou (‘JLW’):[37]

A plaintiff cannot recover substantial as opposed to nominal damages unless he proves both the fact and the amount of damage. If he proves the fact of the loss but does not call the necessary evidence as to its amount he cannot be awarded substantial damages: he must put the tribunal in the position of being able to quantify in money the damage he has suffered. So juries in personal injuries cases are often directed that the plaintiff must prove to their satisfaction what he has suffered and will suffer and what is fair and reasonable compensation in respect of that. It is often said that the amount of the damage must be proved with certainty, but this only means as much ‘certainty’ as is reasonable in the circumstances. Where precise evidence is obtainable, the court naturally expects to have it; where it is not, the court must do the best it can.[38]

[37][1994] 1 VR 237.

[38] Ibid 241 (citations omitted).

Although, in the passage cited above, his Honour was speaking of the application of these principles in respect of breach of contract, on the issue of the certainty of proof of loss and damage, the same principles should apply equally in tort. Brooking J continued his analysis in JLW of the situations in which it was appropriate to insist on precise evidence and those in which estimation is permissible as follows:

There is no rigid dividing line between cases in which guesswork is permissible in assessing damages and cases in which it is not. The borderline between guesswork and rational assessment is itself indistinct, as is the line between evidence that is ‘precise’ (the Permanite Case dictum) and evidence that is not. In Enzed Holdings Ltd v Wynthea Pty Ltd, (to which Tadgell J has drawn my attention) the Full Federal Court thought the case to be one in which precise evidence of the loss was not obtainable, so that if the trial judge found that the plaintiffs had suffered some loss he must do his best to quantify the loss even if ‘a degree of speculation and guesswork’ was involved.
Where the action is for damages for breach of contract and the plaintiff fails to prove any actual loss he may fall back on an award of nominal damages. (The plaintiff fails to prove actual loss for this purpose if he shows that he has suffered loss but fails to furnish material from which its amount may be arrived at.)[39]

[39]Ibid 243 (citations omitted).

In Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (‘Placer’),[40] Hayne J — with Gleeson CJ, McHugh and Kirby JJ agreeing — also addressed the same distinction:

Placer undoubtedly bore the burden of proving not only that it had suffered damage as a result of Thiess Contractors’ breach of contract, but also the amount of the loss it had sustained. It goes without saying that it had to prove these matters on the balance of probabilities and with as much precision as the subject matter reasonably permitted.
It may be that, in at least some cases, it is necessary or desirable to distinguish between a case where a plaintiff cannot adduce precise evidence of what has been lost and a case where, although apparently able to do so, the plaintiff has not adduced such evidence. In the former kind of case it may be that estimation, if not guesswork, may be necessary in assessing the damages to be allowed. References to mere difficulty in estimating damages not relieving a court from the responsibility of estimating them as best it can may find their most apt application in cases of the former rather than the latter kind. This case did not invite attention to such questions. Placer sought to calculate its damages precisely.[41]

[40](2003) 196 ALR 257.

[41]Ibid 266 [37]–[38] (citations omitted).

To summarise, it is useful to refer to what was said by Chernov JA, with whom Buchanan JA agreed, in Longden v Kenalda Nominees Pty Ltd:[42]
[42][2003] VSCA 128.

Thus, it is for the plaintiff to prove both the fact of loss arising from the defendant’s breach and the amount of the loss. Moreover, the plaintiff is required to establish both matters with as much certainty and particularity as is reasonable in the circumstances. Consequently, where a plaintiff could have produced evidence of loss but has simply failed to do so, it ordinarily means that it has failed to prove its case on damages (so that, where the claim is based on breach of contract, the plaintiff would only recover nominal damages). There are, of course, situations where a plaintiff cannot adduce precise evidence of the amount of loss, in which case the court will do its best in that regard and will estimate the damages and, where appropriate, will engage in a certain amount of guesswork.[43]
[43]Ibid [33] (citations omitted), a passage recently cited with approval in MA & JA Tripodi Pty Ltd v Swan Hill Chemicals Pty Ltd [2019] VSCA 46, [73] (Kyrou, Kaye and Emerton JJA).
(b)The measure of damages for inducing a purchase by misleading and deceptive conduct

Neither the former Trade Practices Act 1974 (Cth) (‘TPA’) nor the current ACL prescribe a particular measure of damages when an assessment is to be made for the purpose of remedying loss and damage. That said, it has been consistently held that for both misleading and deceptive conduct and for false representations, the most appropriate measure of damages in most, if not all, cases is the measure of damages for the tort of deceit.[44]
[44]Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, 12, 14 (Mason, Wilson and Dawson JJ) (‘Gates’); Kizbeau (1995) 184 CLR 281, 290 (Brennan, Deane, Dawson, Gaudron and McHugh JJ); HTW Valuers v Astonland Pty Ltd (2004) 217 CLR 640, 656 [35].

The general measure of damages for deceit is the sum representing the prejudice or disadvantage suffered in consequence of the plaintiff having altered their position under the inducement of the fraudulent representation.[45] It follows, that that measure may be expressed as the loss incurred by the inducement, diminished by the corresponding advantage in money or money’s worth that was obtained ‘on the other side’.[46]
[45]Potts v Miller (1940) 64 CLR 282, 289 (Starke J), 297 (Dixon J) (‘Potts’); Toteff v Antonas (1952) 87 CLR 647, 650–1 (Dixon J), 654 (Williams J).
[46]Potts (1940) 64 CLR 282, 297; Gould v Vaggelas (1985) 157 CLR 215, 220 (Gibbs CJ), 242 (Wilson J), 254 (Brennan J) (‘Gould’); Gates (1986) 160 CLR 1, 12 (Mason, Wilson and Dawson JJ).

In cases of deceit inducing the purchase of an asset (for example, a business) a ’rule of practice’[47] has been adopted such that the damage is usually measured by deducting from the price paid the true or real value of the business at the date of acquisition.[48] In calculating the true or real value at the date of acquisition, courts can (and, indeed, should) take into account the financial experience of the business after the acquisition.[49]
[47]McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR (NSW) 187, 192 (Jordan CJ).
[48]Gould (1985) 157 CLR 215, 220 (Gibbs CJ), 255 (Brennan J), 266–8 (Dawson J).
[49]Potts (1940) 64 CLR 282, 299 (Dixon J); Gould (1985) 157 CLR 215, 220 (Gibbs CJ), 266 (Dawson J); Kizbeau (1995) 184 CLR 281, 295–6 (Brennan, Deane, Dawson, Gaudron and McHugh JJ).

Commonly, any ’advantage obtained’ from the transaction (such as the potential for the business to make profits) will be reflected in some positive true (or real) value of the business at the time of acquisition — albeit less than the sum paid. That is, the business may be found to have been worth something, but less than what was paid for it. Similarly, for a business that is worth something, albeit less than what was paid for it, the potential for it to make losses in the future should, generally, also be taken into account in reaching the true value.[50]
[50]Gould (1985) 157 CLR 215, 266–7 (Dawson J), 242–3 (Wilson J).

In addition to the loss measured by the difference between the price paid and the true value at the date of acquisition, in certain circumstances the court may allow additional consequential losses, providing they are directly referable to the fraudulent inducement rather than to some supervening cause (such as ineptitude or third-party intervention).[51]
[51]Ibid 221–3 (Gibbs CJ), 265–6 (Dawson J), 255 (Brennan J).

Such a course may be unusual. As Gibbs CJ noted in Gould v Vaggelas (‘Gould’),[52] consequential losses were taken into account in Doyle v Olby (Ironmongers) Ltd,[53] yet the court did not apply the usual measure of ‘price paid less value at acquisition’; rather, it undertook an accounting exercise weighing up the consequential gains and losses from the date of purchase to the trial. That method was adopted as a measure to meet a particular circumstance, and was somewhat dependent on its own facts.[54]
[52]Ibid 222–3.
[53][1969] 2 QB 158 (Lord Denning MR, Winn and Sachs LJJ).
[54]Gould (1985) 157 CLR 215, 267–8 (Dawson J).

But, if a consequential loss is to be compensated in addition to the difference between the price paid and the true value at the date of acquisition, great care must be taken to ensure that the plaintiff is not compensated twice. Fundamentally, for a loss to be directly consequential upon the nature of the thing bought, the loss-making potential should be inherent (thus, already accounted for) in the value of the thing at the time of purchase.[55]
[55]Ibid 266–7.

Presumably, the same could be said for directly consequential ‘gains’ or ‘benefits’ in the form of net profit actually earned from operating the business after the date of acquisition. Such profit-making potential of the business should be inherent (thus, already accounted for) in its true value at the time of purchase. Giving credit for such gains or benefits, independently of factoring them into the assessment of true value at the date of acquisition, risks double counting.[56]
[56]Ibid.

In Kizbeau Pty Ltd v WG & B Pty Ltd (‘Kizbeau’),[57] the above principles were distilled as follows:

In an action for damages for deceit for inducing a person to enter a contract of purchase, which is an action that is closely analogous to an action for damages for breach of s 52, the courts have consistently held that the proper measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it. Nevertheless, although the value is assessed as at the date of the acquisition, subsequent events may be looked at in so far as they illuminate the value of the thing as at that date. A distinction is drawn, however, between subsequent events that arise from the nature or use of the thing itself and subsequent events that affect the value of the thing but arise from sources supervening upon or extraneous to the fraudulent inducement. Events falling into the former category are admissible to prove the value of the thing, those falling into the latter category are inadmissible for that purpose. Thus, the takings of a business subsequent to purchase are generally admissible, not only to prove that a representation concerning the takings was false but also to prove the true value of the business as at the date of purchase. Even when some difference exists between the conditions under which the business was conducted before and after purchase, evidence of subsequent takings may be admissible, ‘subject to due allowance being made for any differences in relevant conditions’. But if it is established that the decline in takings has been caused by business ineptitude or unexpected competition, evidence of subsequent takings is not admissible to prove the value of the business as at that date, events such as ineptitude and unexpected competition being regarded as supervening events. In some cases of deceit, it may also be proper to compensate the defrauded party not only for the difference between the value of the thing acquired and the price paid for it but also for losses induced by the fraud and directly incurred in conducting the business. All of these principles are appropriate to the assessment of damages under s 82 where a breach of s 52 of the Act has induced a person to purchase a business.[58]

[57](1995) 184 CLR 281.

[58]Ibid 291 (Brennan, Deane, Dawson, Gaudron and McHugh JJ) (citations omitted).

A critical point in Kizbeau turned on whether the trial judge should have insisted that the valuation of the business took into account events that had occurred subsequent to the sale. Relevantly, those events comprised changes made to town planning conditions several years after the sale. Those changes affected the scale of business activities that could be lawfully undertaken by the business and, in turn, the revenue capacity of the business. In short, the High Court held that the judge ought to have taken those changes into account, given that the events affected the revenues of the business and were not supervening events, but instead were directly related to the nature of the business.[59]
[59]Ibid 295.

Although the task remained one of valuing the business at the date of its acquisition, the High Court in Kizbeau observed that a proper valuation would need to consider the likelihood of future changes to the conditions existing at that date. When the court comes to assess the value of the business, it should then prefer facts, as then known, as to the outcome of those possible changes, and base its valuation on those facts rather than the prophecies as at the date for valuation.[60] Explaining this principle by reference to a number of earlier cases, the Court said:

In all of these cases, although the court has valued the assessed damages at the date when the plaintiff suffered the relevant loss, it has had to consider whether a subsequent event truly indicates or reflects the measure of the loss earlier suffered. Whether the subsequent event gives a reliable indication or reflection of the loss depends on all the circumstances. In this case, the valuation process required an assessment of the future revenues of the business and that in turn depended in part upon the scope of the conditions in the town planning permit. As at the date of purchase, the possibility of changes to those conditions may have seemed remote, and not every addition or modification of them would necessarily be relevant in assessing the damages suffered by Kizbeau. But the changes that were made to the conditions in March 1991 were not irrelevant to that assessment, nor could they fairly be regarded as the result of a supervening or extraneous event ... Once those changes occurred, they affected the future revenues and, consequently, the value of the business. The changes in conditions, once they occurred, gave the best indication or reflection of the revenue-earning capacity of the business to be conducted on the leased premises.[61]

[60]Ibid.

[61]Ibid 296 (citations omitted).

Importantly, the principle that the onus lies on the plaintiff to prove its loss resulting from the deduction of the true value from the price paid, with or without the value of any consequential loss (or gain) to be added (or deducted) from that sum, never wavers. Represented as a simple equation, what the plaintiff must prove is: L = PP – TV, ie loss [L] is the result of price paid [PP] less true value [TV] at the date of acquisition. A plaintiff cannot discharge its burden by proving the purchase price [PP] but only providing incomplete evidence of the true value [TV] (where fuller evidence could have been produced) such that true value [TV] is unproven. If that is the case, then the plaintiff has not proven its loss [L]. Put another way, the plaintiff does not merely bear the burden to prove one component of the equation that establishes loss [L], leaving it to the defendant to prove the other. It bears the onus to prove loss [L] which, by definition, requires proof of two elements. Failure to prove either (when both are provable) results in failure to prove loss [L].

For the purpose of analysing the judge’s reasoning in this case, the following relevant principles can be distilled from the authorities we have just discussed:

·the plaintiff bears the onus of proving both the fact of loss and the amount of loss before being entitled to recover substantial damages;
·a plaintiff must establish both elements with as much certainty and particularity as is reasonable in the circumstances;
·while difficulty in quantifying damages may permit a court to estimate them as best it can, that principle will not avail a plaintiff who has simply failed to produce evidence which it could have produced, and failure to do so in that situation will ordinarily mean that it has failed to prove its case on damages;
·the measure of loss caused by misleading and deceptive conduct in breach of s 18 of the ACL is the measure of loss for the tort of deceit;
·where the impugned conduct has induced the purchase of an asset, the ordinary measure is the difference between the price paid and the true value of the asset at the date of its acquisition;
·it follows that the fact and amount of loss is established by the proof of both constituent elements, namely the price paid and the true value at the date of acquisition; and
·in ascertaining the true value at the date of acquisition, the court is to take into account (and the plaintiff must prove with as much certainty and particularity as is reasonable) events after the sale that arise from the nature or use of the asset that illuminate the value of the asset as at that date (subject to due allowance for any changes in relevant conditions).

Analysis of ground 2

We now turn to examine the reasoning of the judge in light of the principles we have just enumerated.

The first thing to observe is that the judge had accepted that, at the date of its acquisition, the business was worthless. His Honour arrived at that conclusion by preferring the evidence of one expert accountant (called by CAT) over another (called by Keys).[62] The accountant called by Keys had valued the business at $591,888, of which $238,000 was for maintainable future earnings (‘EBIT’), whereas the accountant called by CAT believed the business had no goodwill value because there was no written contract with a single customer.[63] His Honour specifically revisited and affirmed his finding that the business was of no worth in the course of considering the arguments on damages.[64]
[62]Liability reasons [335].
[63]Ibid [309]–[312], [335].
[64]Remedy reasons [52]–[54].

Although that conclusion may have some technical merit viewed solely at the date of acquisition, it appears to us that his Honour failed to take into account, with the benefit of hindsight, the actual performance of the business between August 2013 and the date of judgment. On CAT’s own submission, the business had returned a profit to July 2015 of some $52,000. CAT’s figures were accepted by the judge as being unreliable, and other evidence (including the documents subpoenaed from Briner) suggested that the profit might have been considerably more. Doing the best he could, and appearing to make something of a guess (to which we will return shortly), his Honour was prepared to allow that the business had made a profit of $100,000 over the period.

A seemingly uncontroversial point is that, despite the absence of any written contract with Briner, the business continued to generate revenue and profit from its historical relationship as a supplier of signage services to Briner. The judge was invited to reconsider the valuation he had previously accepted on the accountant’s evidence when applying the principles for measuring loss and damage applicable to the sale of an asset induced by misleading and deceptive conduct.[65] On the facts found, and consistently with principle, the judge should have reviewed the value of the business at the date of acquisition by taking into account its post-sale performance. Had he done so, we think it probable that some positive true (or real) value would have been assigned to it for the purpose of assessing damages.
[65]Ibid [52].

This observation, however, creates some awkwardness on this application for leave to appeal. The applicants have not explicitly challenged the judge’s finding about the value of the business at the date of acquisition. Accordingly, they have not challenged the first link of the judge’s reasoning that a prima facie loss of $300,000 was established by comparing the instalment of purchase price paid under the first contract with a nil-value for the business at that date. Rather, the applicant’s ground focussed on the figure of only $100,000 being allowed as the benefit received, in the face of the uncertainty of the evidence about the financial performance of the business, and the apparent reversal of the onus of proof inherent in the judge’s reasoning.

Despite the lack of direct challenge to the nil-value given to the business at the date of acquisition, in our view the argument that the applicants sought to raise on appeal necessarily requires a consideration of the correctness of that finding.

Having affirmed — incorrectly, we think — a nil-value for the business at the date of acquisition, the judge not only relieved CAT of any further obligation to pay the purchase price under the first contract, but further assumed that the $300,000 had been paid for no value and should be notionally refunded. That amount then formed an artificial prima facie damages sum.

This reasoning then had the effect of making it appear that Keys, as vendor, had to prove any benefits that CAT, as purchaser, had received through the running of the business in order to reduce the prima facie damages. In the face of uncertainty as to the quantum of benefits so derived by CAT, the judge concluded that it could not be ’right’ that CAT should fail merely because of that uncertainty when it had established a prima facie measure of damage.

We think that there are a number of errors in this approach. First and foremost, the approach fails to recognise that there are two elements to measuring the purchaser’s loss in a situation such as this, each of which must be established by the purchaser. Those two elements are the price paid and the true value of the business at the date of its acquisition. The second error is that the true value of the business at the date of acquisition should have been assessed in the light of events subsequent to the sale, where those events were capable of illuminating the true value at that date. For the reasons we have explained, we think that the post-sale financial performance of the business probably did illuminate its true value at the date of acquisition, but was not adequately taken into account, resulting in an artificial nil-value being assigned to it. Put another way, and perhaps more fundamentally, the error lay in failing to recognise that estimates of future earnings are inherent in the assessed true value at the date of acquisition, and that the examination of the actual post-acquisition performance is a more reliable means of deriving (or testing) those estimated future earnings. Seen this way, taking account of subsequent revenues and profits as consequential gains, as if independent of true value, is an error.[66]
[66]See above [83].

The third error is that the onus of proof should never have shifted from CAT to provide evidence, with as much certainty and particularity as was reasonable in the circumstances, as to the post-sale performance of the business in order to prove its true value at the date of acquisition. However, it appeared that the judge did, in substance, relieve CAT of that onus. Here, CAT was the owner and operator of the business at the relevant time. It neither kept nor produced any proper financial statements or tax documents pertaining to the business for the relevant period. There was no cogent explanation for that failure, in circumstances where it should reasonably have been expected that CAT could do so. Instead, CAT merely produced a rudimentary spreadsheet, accepted by the judge as unreliable for the purpose of representing true financial performance. CAT was unable to respond adequately to the information contained in the list of invoices and billings produced by Briner, to which it had had access for a significant time before the trial,[67] and which suggested that its own figures were significantly understated.
[67]In a ‘Joint Memorandum’ filed after the hearing, the parties agreed that the ‘Briner documents’ referred to by the judge in the extract from his reasons at [64] above were made available for inspection by the parties between 20 August 2015 and 4 September 2015. It was further agreed that a summary of those documents was given to counsel for CAT on 20 March 2017.

In our view, the situation before the judge was not one of a party facing inherent difficulty in producing evidence to establish its loss. It was simply a case of CAT failing to produce evidence of sufficient certainty and particularity that it should reasonably have been able to produce. Accordingly, it was not a circumstance justifying the judge doing the best he could to estimate uncertain damages — he should instead have found that CAT had simply failed to prove one essential component of the measure of its loss and, thus, failed to prove its damages case.

Finally, we are unable to discern any sound basis for the judge having estimated the benefit received by CAT at $100,000, as opposed to, say, $200,000 or even $300,000, or some other figure. No reasoning was advanced at all for the figure that was chosen. None of the parties could suggest a plausible method of estimation that the judge must have adopted. Nor can we think of what it must have been. For example, did the judge roughly double the figure that counsel for CAT submitted was the probable profit for the period ($52,000) upon the particular assumptions he had made? If so, why, and how is that sum to be reconciled with the additional $340,000 of earnings that the business appears to have made, if one accepts the Briner invoices as a more accurate guide to business income than the income figure appearing in Mr Trigg’s spreadsheet? It is one thing to make an informed estimate; it is altogether different to simply adopt an unexplained and inexplicable figure.

In our view, the judge’s approach to the assessment of damages in respect of the conduct that induced CAT’s entry into the first contract was affected by error. On proposed ground 2, we would grant leave to appeal and allow the appeal.

Ground 3

Proposed ground 3 challenged the judge’s finding that no value had been conferred upon CAT under the second contract, resulting in the order that CAT be relieved of having to pay any of the contract price. In more detail, proposed ground 3 contended that:

His Honour erred in granting relief to CAT in relation to the ‘Other Part the Business Representation’ equivalent to the entire purchase price (albeit of granted by way of judicial variation to Contract 2 relieving CAT of payment of the entire purchase price, rather than as damages per se, because no part of the purchase price under Contract 2 was ever paid), in that despite finding that:
(a)Contract 2 was not illusory and that ‘there was business of the class formerly done by Expert Extensions to the tune of hundreds of thousands of dollars in the ensuing financial year’;
(b)in the assessment of damages, benefits obtained must be brought into account; and
(c)CAT had failed to adduce reliable evidence from which the benefits which it received from operating the business could be calculated.

His Honour:
(i) failed to hold that the party which was claiming damages, and which could and should have provided the court with sufficient and reliable evidence from which they could be calculated, had failed to satisfy its evidentiary burden; further or alternatively
(ii) failed to assess or bring into account the benefit derived by CAT in the operation of the business purchased by it under Contract 2.

It will be recalled that the second contract was made to incorporate into the sale the former business of Expert Extensions, recently acquired by Keys. His Honour found that entry into the second contract was induced by a separate misrepresentation, also amounting to a breach of s 18 of the ACL. No part of the purchase price of $200,000 had been paid by the time of trial. By way of relief, his Honour relieved CAT of the obligation to pay any part of it.

It can be seen that, by this proposed ground of appeal, the applicants sought to raise the same issues of principle that have already been discussed in connection with proposed ground 2. Those issues include: the proper method for valuing the business sold under the second contract as at the date of its acquisition and, in particular, the relevance of its subsequent financial performance on that assessment; the correct application of the onus of proof; and, the correct conclusion to be drawn, in the circumstances, from the absence of reliable evidence about the benefits derived by CAT in conducting the business subsequent to its acquisition.

Analysis of ground 3

In response to CAT submitting that the judge should relieve it of having to pay any part of the purchase price, Keys had argued that the judge should revisit his earlier finding (made in the liability reasons) about the business having a nil-value. Keys specifically urged his Honour to take into account the level of annual billings for that part of the business formerly carried out by Expert Extensions after July 2013.[68] As already noted, the judge affirmed his previous finding as to value and, in relation to the component of value contributed by the former Expert Extensions business, took comfort in the fact that the business had been acquired by Keys, before it was on sale to CAT, for a price that included nothing for goodwill.[69]
[68]Remedy reasons [52].
[69]Ibid [54].

His Honour continued:

Accordingly, this Second Business Sale Agreement was, upon the findings that I have made, procured by Keys by misleading or deceptive conduct. It entailed CAT committing to pay substantial amounts of money for a business which, upon the expert evidence which I have accepted, was worthless. Again, I accept the submission made by [counsel for CAT] that Mr Trigg and CAT received no worthwhile training under the Second Business Sale Agreement. The only training which he received was with respect to residential work, and he received this from Mr De Bono. That was referable to the principal contract and not the second contract. The orders advocated by [CAT] should therefore be made.[70]

[70]Ibid [55].

It is therefore apparent that his Honour’s approach to fashioning relief in respect of the second contract was inextricably linked to his crucial finding of fact made in connection with devising the relief in respect of the first contract. That is, it was linked by the finding of a nil-value for the business (in all of its components) at the date of acquisition. We have already said that that value was not sufficiently informed by evidence of the financial performance of the entire business between its acquisition and the trial.

CAT did not attempt to provide discrete financial figures depicting the individual performances of the businesses it acquired under the first contract, or the second contract, so as to illuminate an independent assessment of each business’ true value at the date of its acquisition. No real attempt was made at any separate analysis of loss flowing from the acquisition of the one business as distinct from the other. Further, there was no special logic in applying the benefits derived from conducting the combined business against the price payable under the first contract as opposed to the second, other than that part of the price was actually paid under the first but wholly deferred under the second.

Being so linked, there is something to be said for an approach that treated the two contracts as constituent elements of a single sale of one business. Ideally, they would have been dealt with together, so that any relief given could have addressed the global result and not just the individual parts.

But whatever may have been the preferable approach, the errors we have identified in respect of the assessment of damages for inducement of entry into the first contract produce an uncertain foundation for the relief granted in respect of the second. CAT simply did not produce sufficiently certain or particularised evidence of the performance of its business, either in its individual parts or combined, from which a finding of the fact of loss, still less the amount of loss, could properly be derived in respect of entry into the second contract.

We would grant leave to appeal in respect of proposed ground 3, and allow the appeal.

Disposition

Fundamentally, we have found that the judge erred by incorrectly treating the profit made by CAT in operating the business between the date of acquisition and trial as a ‘benefit’ to be set off against a prima facie measure of loss so as to derive a sum of damages that the vendor, Keys, should pay the purchaser, CAT. Properly analysed, the profit made was an integer in the assessment of the true value of the business at the date of acquisition, which was to be deducted from the contract price in order to produce the correct measure of damages. Secondly, the judge incorrectly visited upon Keys the consequences of the evidentiary uncertainty that existed about the quantification of that benefit.

On appeal, as at trial below, Keys only addressed the second of those two errors. Indeed, its arguments at trial probably contributed to the judge’s error in respect of the first. Further, at trial, Keys did not dispute that CAT had suffered some loss by entering the first contract: Keys conceded consequential losses of $17,030.86 and a further loss of $50,000 upon an analysis it did not advance on appeal.[71]
[71]Ibid [10].

Keys’ approach at trial appears to have carried through to its approach on appeal. As observed above,[72] Keys’ second ground of appeal, disputing the damages award, took up the challenge by attacking the quantification of the ‘benefit’ to be set off against the so-called prima facie loss, a loss which it did not challenge. Moreover, Keys’ challenge under the third ground, in respect of the second contract, essentially adopted the same line of attack on the judge’s reasoning for fixing Keys with the consequences of the evidentiary uncertainty about the quantification of CAT’s benefit derived from running the business.
[72]See [59] above.

In short, Keys’ challenge on appeal was to the judge’s conclusion that CAT had established a quantifiable benefit from conducting the business so as to allow the calculation of a measurable loss, by deducting that benefit from the $300,000 paid out under the first contract for an allegedly worthless business. To that extent, Keys has succeeded. It has succeeded in persuading us that the judge was wrong in concluding that there was a quantifiable benefit.

Keys’ approach, it seems to us, explains why, in its Notice of Appeal, it did not seek to set aside the judge’s order in paragraph 2(d), relieving CAT of the obligation to pay the deferred $200,000 sum due under the second contract. Nevertheless, Keys sought an order overturning the judge’s order (in paragraph 2(c)) relieving CAT of its obligation to pay the deferred $150,000 instalment of purchase price under the first contract and varying the price of that contract from $450,000 to $300,000.

In our view, however, that relief is entirely consistent with and explained by Keys’ first ground of appeal, upon which it has failed. Under that proposed ground of appeal, Keys argued that the judge wrongly concluded that the representation made in connection with the first contract had induced CAT to enter into it, thus arguing there was simply no cause of action made out and, so, CAT should not have been relieved from paying the full purchase price. It follows that, had Keys succeeded on that ground, CAT’s obligation to pay the $150,000 instalment would have been restored.

Having regard to the arguments put by Keys both at trial and on appeal, and the relief that it sought (and did not seek) in its Notice of Appeal, we consider that the following are the appropriate orders to give effect to our findings and reasoning:

·Leave to appeal in respect of ground 1 be refused.
·Leave to appeal be granted in respect of grounds 2 and 3 and the appeal be allowed.
·Paragraphs 2(a) and (b) of his Honour Judge Macnamara’s orders dated 5 February 2018 be set aside and in lieu thereof it be ordered that Keys pay CAT damages pursuant to s 236 of the ACL in the sum of $17,032.86 together with interest pursuant to statute.
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SCHEDULE OF PARTIES

KEYS CONSULTING PTY LTD (ACN 069 620 686)	First Applicant
and
ANTONIO SCATURCHIO	Second Applicant
v
CAT ENTERPRISES PTY LTD (ACN 100 325 460)	First Respondent
and
CRAIG TRIGG	Second Respondent
and
JULIE TRIGG	Third respondent

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Citations

Keys Consulting Pty Ltd v CAT Enterprises Pty Ltd [2019] VSCA 136

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[2019] VSCA 136

19 June 2019