Keys Consulting Pty Ltd v Cat Enterprises Pty Ltd
[2017] VCC 1661
•16 November 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-14-02966
| KEYS CONSULTING PTY LTD | Plaintiff |
| v | |
| CAT ENTERPRISES PTY LTD & ORS and CRAIG TRIGG and JULIE TRIGG | First Defendant Second Defendant Third Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20, 21 March, 28, 29, 30, 31 August, 1, 4, 7 & | |
DATE OF JUDGMENT: | 16 November 2017 | |
CASE MAY BE CITED AS: | Keys Consulting Pty Ltd v CAT Enterprises Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 1661 | |
REASONS FOR JUDGMENT
Subject: CONTRACT LAW
Catchwords: Alleged misleading or deceptive conduct; contracts for the sale of businesses; whether repudiated by seller; whether containing conditions precedent to contract or performance; claim for unpaid balance of purchase price; counterclaim by buyer for damages
Legislation Cited: Competition and Consumer Act 2010;
Cases Cited:Hungerford v Walker (1989) 171 CLR 125; Bill Acceptance Corp Ltd v GWA Ltd (1983) 78 FLR 171; Parkdale Custom Built Furniture Pty Ltd v Puxu (1982) 149 CLR 191; Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Judgment: 1. Adjourned to a date to be fixed, at which time the court will hear submissions as to the relief to be granted. 2. Costs reserved.
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R L Moore | Salisbury Advisory Pty Ltd |
| For the Defendants | Mr A W Sandbach | Goldsmiths Lawyers |
HIS HONOUR:
Background
1 Mr Tony Scaturchio is the principal of the plaintiff, Keys Consulting Pty Ltd (“Keys”), and also the company known as Sign Install Pty Ltd (“Sign”). He had been carrying on business through the medium of those companies for some 20 years, installing signs principally for a company known as Briner Ads Pty Ltd (“Briner”).
2 Briner entered into an arrangement dated 18 April 1997 with a company known as Scaturchio Nominees Pty Ltd (“Scaturchio”), relative to the installation and removal of signboards for real estate purposes in metropolitan Melbourne. (Plaintiff’s Court Book “PCB” 83-89)
3 Briner issued a further document dated 28 August 1997 superseding the April document and declaring it “now null and void” and substituting Keys as the contracting party on Mr Scaturchio’s side. (PCB 90)
4 By an agreement dated 22 March 2011, Briner appointed a company named Ace Sign Solutions Pty Ltd (“Ace”) as contractor to provide installation services to Briner for residential real estate signs in metropolitan Melbourne. Ace was a company owned and controlled by individuals who had previously provided sub-contract sign installation services in the real estate market to Briner. (PCB 92-109)
5 By clause 2.1, Briner appointed Ace “as its exclusive contractor to carry on the Business within fifty kilometres of the Melbourne GPO for the duration of this Agreement …”.(PCB 94) The agreement was for a term of five years commencing on 22 March 2011.
6 Clause 7.1 authorised Briner to assign its rights or obligations under the contract, (PCB 96) but clause 7.2 prohibited assignments by Ace “without the prior written consent of Briner”. (PCB 96)
7 Clause 4.5 headed “Change of management or control” provided as follows:
“In the event of any material change in the management or control of Ace and in particular any change of directors or shareholders of Ace, to provide Briner with 14 days written notice of the relevant change(s). New directorial appointments or transfer of shares in Ace to another shareholder shall be subject to and conditional upon Ace obtaining prior written approval from Briner which shall not be unreasonably withheld if Ace is not in default of this agreement and if Ace establishes the suitability and respectability of the proposed appointee/transferee and the proposed appointee-transferee’s capability of adequately carrying on the business in accordance with this agreement to the satisfaction of Briner.” (PCB 95)
8 Briner was also a major player in the market for the installation of a range of large commercial signs in metropolitan Melbourne, but the agreement with Ace had no application to these. Briner seems to have allocated this commercial work on an individual contract basis and had no long-term agreements with any particular sub-contractor. Briner was accustomed to ask for quotations from two or three sub-contractors in relation to major organisations such as Stockland, a Briner customer. According to Mr Tsakonas, Briner’s managing director:
“… we’d shop around with two or three contractors and make sure that they were available to do it and one is the right price for us, so we try and always go for the cheaper price”. (Transcript (“T”) 744, Lines (“L”) 28-31)
9 In 2013, Briner had three to four contractors doing this larger commercial work. (T745, L2-4)
10 As to residential work, Mr Scaturchio’s companies operated in what was known as Zone A, consisting of a number of central, western and northern postcode districts in metropolitan Melbourne. (PCB 91), (T70, L12-16)
11 The relationship between Mr Scaturchio’s companies, Keys and Sign, appears to have been set by resolutions of the directors of Keys on 29 September 2004. (PCB 298) The resolution stated inter alia:
“The Directors resolved that a new corporate entity to be named Sign Install Pty Ltd be incorporated to undertake all future trading of sign installations under license and pay a service fee to Keys Consulting Pty Ltd.
The goodwill of the business will remain with Keys Consulting Pty Ltd.”
12 The effect would seem to be that Keys was the contracting party with Briner for the provision of sign installation services, either under the umbrella of the Ace agreement or separately for commercial work, but this work was further sub-contracted by Keys to Sign. Mr Scaturchio was both a shareholder and director of Ace. (T70, L28-30)
13 As to residential real estate signs, according to Mr Scaturchio, they were relatively straightforward to install, but there were important rules and considerations which needed to be borne in mind and observed. An installer would become aware of these things, principally by experience. He said:
“… a sign may seem quite easy to - to install, but if you’ve got, um, you know, numerous, um, number to go up in various areas, like, take - take into consideration - there’s traffic, school hours, you know, peak and off-peak times, where you can and can’t park on major roads to install signs.” (T72, L14-19)
14 Installations needed to be planned, mapped and put in order. An experienced operator could do that in his mind, but a beginner would need to put these matters on paper. (T72, L28 – T73, L4)
15 According to Mr Scaturchio, there was “a high degree of difficulty with commercial work”. The signs needed to be strictly engineered. Signs could be up to “20 metres wide, 4 metres high and 2 metres off the ground”. (T73, L30 – T74, 13)
16 From early 2012, Mr Scaturchio’s companies engaged an individual sub-contractor identified as “Coda”. (T76, L4-6) He was doing the residential work in Zone A and “small-scale commercial as well”. (T76, L11)
17 The arrangement with Coda was that Mr Scaturchio’s companies would take 15 per cent of the charge rendered to Briner for a residential installation and 30 per cent for commercial. Coda would invoice Mr Scaturchio’s companies, and Mr Scaturchio’s company would invoice Briner. (Ibid, L14-20)
18 In 2012, Mr Scaturchio’s eldest son was killed in a jet ski accident. As a result, Mr Scaturchio said he “decided to take a step backwards and, um, take less responsibility, and then decided to on-sell the business through a business broker”. (T76, L24-31)
19 The business referred to was “the sign installation business for Briner Ads”.
20 Mr Scaturchio listed the business with Valentines Business Broker (“Valentines”). In consultation with the broker, Mr Scaturchio put a price on the business of $500,000. (T77, L1-11)
21 The business was listed for sale for at least six months until there was an approach from Mr Craig Trigg, who is the principal of the first defendant, CAT Enterprises Pty Ltd (“CAT”). It would seem that this company derives its name from Mr Trigg’s initials.
22 Mr Scaturchio said that he provided Valentines with the Ace contract and three years of financial statements, together with a list of equipment. (T77, L27-31)
23 Mr Trigg said that he was an industrial engineer by profession and had “35 years or so now [of] industry experience”. (T439, L11-13) He said his work had been principally in the apparel industry and “that industry has long since departed this beloved land of ours and most of the production is now done overseas in the likes of China and Thailand, Sri Lanka”. (Ibid, L17-20)
24 He continued:
“I am blessed with a beautiful wife and a young family and an ageing mother who at the time [2013] was approaching 90 years of age and whilst my contract fees were very attractive, while I was away it did mean that I had to spend often extended periods of time away from my family in order to do so. So I decided to try and seek out an opportunity here in Australia, particularly in Melbourne, of something that might afford me a similar‑type income but I could enjoy time with the family and be home in my own bed each night and kiss my own children good night and see mum and so on who was unable then to or becoming unable to live on her own, as she had been through that stage. (T439, L26 – T440, L7)
25 He said he had:
“…a practical aptitude, as well as being able to sit behind a desk and operate computers and design management systems and quality systems and production systems, I'm just as handy with a drill, a hammer or whatever else it might be as we've renovated eight houses fully, including bathrooms, kitchens, extensions, decks ‑ everything. So when something like putting up a sign came along, it was something that I became interested in.” (T440, L10-17)
26 Mr Trigg became aware of the sale of the company of Sign/Keys “through an internet search”. (T441, L1) He spoke to Valentines’ principal known as Abraham, who initially referred him to a business involving airport parking. (Ibid, L4-17)
27 Mr Abraham Ziada then referred him to the Sign Install business. (Ibid, L18-22) According to Mr Trigg, “the asking price was $495,000”. (T442, L4) Mr Trigg said he did not have “that kind of money”, but Mr Ziada suggested that some sort of arrangement might be reached. Mr Trigg said that his involvement with property renovations made him familiar with the concept of vendor terms. (T442, L7-13)
28 Mr Trigg was required by Mr Ziada to sign a confidentiality agreement to the effect that “under no circumstances would I approach the customer [that is, Briner]”. (T443, L28 – T444, L5)
29 When Mr Trigg obtained some financial information about the Keys/Sign business, he approached an accountant whom he “just really looked up in the Yellow Pages”. He showed the figures to the accountant and obtained a series of questions which should be posed to the vendor. (T444, L17-26)
30 As a result of that advice, Mr Trigg sent an email dated 20 March 2013 to Mr Ziada posing some 15 questions. He provided the name and address of his accountant in the email. The first question was “Require copy of the contract with Briner Ads?” Asked if that document was provided to him, Mr Trigg said:
“The short answer is no. I was aware that there was a contract for the residential ‑ it was called real estate ‑ we know it as residential, I think ‑ real estate part of the work but there wasn't one for the commercial but it was indicated that there would be one forthcoming. But in terms of the contract for residential, that didn't appear until completion date, I think it was.” (T445, L7-14)
31 Mr Moore, counsel for Keys, challenged this evidence in cross-examination. Mr Ziada did not give evidence. Mr Moore obtained production of a superseded draft of the Asset Sale Agreement which Mr Trigg, his wife and his company entered into with Keys and Mr Scaturchio, which included in the superseded draft a reference in the definition of “contract” to the 11 March 2011 agreement between Briner and Ace.
32 The assets offered for sale for $495,000 included, according to Mr Trigg:
“… a truck and some tools and so on mentioned with it, but there was no separation between A and B, for example; there was no separated listing of goodwill or anything. That was just piled in, if you like, with the asking price of back then $495,000, which included the truck.’ (T446, L15-20)
33 He said there were some invoice listings and provisional tax returns but no final returns provided. (Ibid, L21-31) There was an assistance period discussed in the course of the negotiations, including arrangement for payment on terms. (T447) The assistance period, that is assistance by Mr Scaturchio and his companies to Mr Trigg and CAT, was “for 24 months – up to 24 months”. (T448, L23-24) The outstanding balance of the purchase price beyond $300,000, which was all that Mr Trigg would be able to pay “on the nail”, would occur within two years or sooner if Mr Trigg could manage it. (T449, L29 – T450, L9) Mr Trigg could not have entertained a purchase price beyond $300,000 without vendor terms. (T450, L3-6) Mr Trigg received no written assurance from Briner as to its consent for the sale of the Sign business. (Ibid, L11-14)
34 According to Mr Trigg, he told Mr Ziada and Mr Scaturchio that he needed assurances on this point:
“This is my family. This is every cent I've got. I can't afford to, you know, lose any of it. Are you sure that the customer is going to be okay with this?" (T451, L25-28)
35 Mr Moore complained that this conversation had not been directly put to his client, Mr Scaturchio, in cross-examination.
36 Mr Trigg said he did not know how many zones were involved in the Ace contract, though he knew there was a zone arrangement. He said “I just knew that I was purchasing one of [the zones]”. (T453, L24-26)
37 According to Mr Trigg, Mr Scaturchio told him there was:
“…a contract in existence that [allowed] the installation of residential-type signs in a zone … the north and western parts of the Melbourne area that extended from St Kilda right up to Craigieburn.” (T454, L24-29)
There was no contract for commercial work. (Ibid, L29-31)
38 Mr Trigg said Mr Scaturchio told him, “I’m sure I can get one for you but, you know, let’s do the deal first”. (T455, L3-4) No specific date or deadline was given. (Ibid, L31) Mr Trigg said he was told by Mr Scaturchio and Mr Ziada that Sign had a contractual right from Briner to work that zone. (T457, L6-13) In April 2013, according to Mr Trigg, there was discussion as to how much money he or his company might be able to pay and when. (T457, L18-27) Mr Trigg’s discussions with Mr Ziada and Mr Scaturchio had begun in January or February of that year. (Ibid, L28-29)
39 On 8 May 2013, Mr Trigg sent an email to Mr Ziada. He said he was “expecting to have approval next week”, presumably approval of finance. The email said that two matters had been discussed and needed to be “nailed down”:
·“A contract of some sort regarding the commercial side – otherwise there was nothing to buy as you wouldn’t pay $300K for the residential side with no guarantee of commercial work going forward and,
·A statement from Tony to the effect that ‘to the best of his knowledge there is no reason why the business should not continue as it is’ (in other words, he warrants that he did not have any inside running on significant/foreseeable changes to the current business model and its operation that would adversely impact the purchaser) …” (PCB 140)
The email continued, setting out “basic elements we discussed”, including a purchase price of $300K. Mr Trigg would do the commercial work and “Cody” (presumably a reference to Coda) would “go”, enabling Mr Trigg to derive 100 per cent of residential revenue. Mr Scaturchio would continue with commercial installations for a period of “up to two years”, and would “run truck and employee at own expense” (PCB 140). There would be a 65 per cent/35 per cent split of commercial signage. Mr Trigg would have two months training with Mr Scaturchio’s brother before commencing residential work, “Tony to guarantee own performance”. (PCB 140) Mr Trigg said that, in any event, he was not seeking to purchase a truck which was offered as part of the business for sale at a value of $95,000. This should, he said, have reduced the price of the business on any view from $495,000 to $400,000. (T460, L23-26)
40 Mr Trigg said he did not recall getting a written or other direct response to his proposal to buy at $300,000. (T461, L14-17) This email was not mentioned by Mr Scaturchio in his evidence. At any rate, whether the proposal by Mr Trigg and his company to buy for $300,000 was distinctly rejected, it was certainly not accepted. One matter that was dealt with directly was a rejection by Mr Scaturchio and his broker of a revenue split for commercial work of 65 per cent/35 per cent. Rather, the split would be 70 per cent to Mr Scaturchio and his company, Sign Install, and 30 per cent to Mr Trigg and CAT. (T462, L22‑25)
41 Later that month, on 23 May, Mr Trigg offered:
“$370,000 on the basis that my offer needs to be paid in two parts, (for reasons of which you are already aware) and therefore, as compensation to Tony for waiting for the balance ($70,000) I am prepared to offer the higher amount.” (PCB 144)
42 This offer also seemed to have been embodied in a document styled “Binding Heads of Agreement between Vendor and Purchaser” on Valentines’ letterhead. It was signed by Mr Trigg on behalf of CAT. This document provided for a price of $370,000, a deposit of $5,000, and the settlement date of 29 July 2013. (PCB 145) This document included an attached page of typed special conditions. It appears that this document was “reworked”, with a change to various figures and conditions on 11 June 2013. This seems to have been the basis for the asset sale which was thereafter documented by solicitors acting for Mr Scaturchio and his companies.
43 Upon the reworking, the price was increased from $370,000 to $450,000. The vendor’s share of commercial work during the two-year transitional period was increased to 70 per cent. The entitlements sold were extended from the Zone A already described to include also the “Peninsula area”. There was a special condition added in Mr Scaturchio’s writing, to which, as I understand it, Mr Trigg agreed, stating “Balance of $150,000 to be paid within 24 months of settlement and also secured against Briner contract and property at Wonga Park.” One of the dot points, added as a special condition, stated “All commercial work as currently given by Briner Ads to Sign Install will be passed to the purchaser.”(PCB 147)
44 Between the making of the offer to purchase at $370,000 and agreement on the price of $450,000, Mr Trigg said he received a call from Mr Ziada saying:
“Look, another zone has become available. It’s a zone down on the peninsula. For another 50,000, that will close the deal. So 450,000, you will have two residential zones and all the commercial work.” (T465, L29-T466, L1-2)
45 Mr Trigg said that he had discussions thereafter with Mr Scaturchio who said that the Peninsula zone, according to Mr Trigg, “turns over between 100 to 120 thousand.” (T466, L6-7) It was then, according to Mr Trigg, that he agreed “to offer $450,000 for the two zones and all of the commercial work”. (T467, L16-18)
46 Mr Scaturchio’s evidence on how the price of $450,000 was reached was somewhat inconsistent. He said that in the course of his negotiations with Mr Trigg, somebody from Briner said, “We’d like one of the drivers to take over the Peninsula run”. (T84, L28-29) According to Mr Scaturchio, he received no written proposal from Briner, but the turnover on the Peninsula run was said to be “probably up to $80,000”. (T85, L14-15) Mr Scaturchio said he told Mr Trigg, “If you’re interested, you know, like we can include it as part of the deal.” (T86, L5-6) He said he explained to Mr Trigg “that the area wasn’t busy. So there’s an area there he can cut his teeth into and – learn slowly.” (T86, L7-9) According to Mr Scaturchio, he said nothing to Mr Trigg about the Peninsula run having a turnover of $100,000 to $120,000. Rather, he was told by Briner the turnover was $50,000 “and then I’ve conveyed that … to Mr Trigg”. (T281, L29-31)
47 Mr Scaturchio gave this evidence in cross-examination on 29 August 2017. His earlier evidence that Briner had told him that the Peninsula turnover was approximately $80,000 was given on 20 March 2017. The long break in the trial resulted from Mr Trigg suffering a cardiac event on 21 March. According to Mr Scaturchio, the addition of the Peninsula Run had no influence on the price. Contrary to what Mr Trigg said, “The Peninsula run was offered at a zero price.” (T254, L5-6)
48 Asked if the price of $450,000 was agreed only after the Peninsula had been introduced, Mr Scaturchio said, “No, it had nothing to do with it.” (Ibid, L8) But a moment later, he said “It [the Peninsula run] was just a sweetener to get the deal over the line.” (Ibid, L16) Mr Scaturchio conceded that the last thing that was agreed upon was the price. (T255, L9-13)
49 During his evidence-in-chief given some six months previously, I had asked Mr Scaturchio why he had been interested in the Peninsula run at a time when, for reasons he had explained, he was wanting to “step back” from business commitments. He replied “I just saw it as a – as a money making exercise; seeing something for sale and trying to on sell it to someone else.” (T85, L24-26) He agreed with me that he had expressed interest not because he intended to operate the run himself, but because he saw the offer as an opportunity to on sell it, viz to Mr Trigg and CAT. (Ibid, L27-29)
50 The sale transaction was documented by Beaumont Lawyers acting on behalf of Mr Scaturchio and his companies. The agreement apparently went through a number of drafts. One of the preliminary drafts was produced by Mr Trigg at the insistence of the plaintiff’s counsel, Mr Moore, though there was no explanation as to why that document would not have been available to Keys from its own records, since the law firm which prepared it was acting for Keys.
51 The Asset Sale Agreement in its final form is to be found at PCB 201. The parties were Keys as the seller, CAT as the buyer, Mr and Mrs Trigg as guarantor, and Mr Scaturchio as covenanter. The contract provided for the sale of the Assets and the Business to CAT as buyer. “Assets” were defined as follows:
“Assets means the following Assets of the Business:
(a)the Goodwill; and
(b)all the Vendor’s rights and obligations pursuant to the Contract.” (PCB 202)
52 “Business” was defined as follows:
“Business means the sign installations business carried on by the Seller using the Assets;” (PCB 202)
53 “Contract” was defined as follows:
“Contract means the Appointment of Contractor Agreement dated 22 March, 2011 (Zone A and S and peninsula area) between Briner Ads and Ace Sign Solutions in connection with the Business in respect of the sign installations as well as all ongoing commercial work currently provided to the Seller by Briner Ads.” (PCB 203)
54 There was provision for a deposit to be paid of $50,000. The purchase price was $450,000 plus goods and services tax. The completion date was shown as 29 July 2013 “or such other date agreed upon between the parties” with some $250,000 payable on that day. The contract itself was undated, but attached Guarantee & Indemnity forms addressed to Keys were signed by Mr and Mrs Trigg and were dated 25 July 2013. Execution of the contract on that date was consistent with Mr Trigg’s evidence. It will be seen, therefore, that the contract was executed a mere four days before the projected settlement date.
55 Attached to the agreement (PCB 223) was a Share Transfer form in which Mr Scaturchio transferred some 100 shares for a price of $100 to CAT Enterprises and this transfer was signed by Mr Scaturchio on 26 July 2013 and by Mr Trigg on 25 July. There was a Resolution of Directors of Ace appointing Mr Trigg an additional director and recording Mr Scaturchio’s resignation. The Minutes contained three signatures purporting to be those of directors of Ace.
56 The deposit was expressed to be payable “on or before the signing of this agreement …”. Mr Trigg gave evidence that he paid the $50,000, though he did not say exactly when. (T540, L9-11)
57 It may be, however, that the $50,000 was paid when the “Binding Heads of Agreement” document was reworked on 11 June 2013. Clause 4 provided for payment of the deposit to the seller’s agent, presumably Valentines. Clause 8 dealt with rights and obligations after completion, clause 8.1, “Seller Assistance following Completion”, provided that:
“The Seller will provide to the Buyer assistance and training in all aspects of the Business including that training provided for in clause 3.3(c), until the Final Payment Date, on a subcontractor basis, the terms and conditions of which are to be agreed upon between the parties. The parties may agree to extend (subclause (c)).
Subclause (e) of the same clause provided
“After Completion, the Buyer must pay to the Seller an amount equal to 70 per cent of all invoiced amounts for all commercial sign installation work carried out by the Business between the Completion Date and the Final Payment Date.”
58 Clause 8.2 provided:
“The Seller must, by no later than the Completion Date, ensure that the Contract is Assigned to the Buyer with effect from Completion and that all necessary consents to such an Assignment are obtained from all relevant Third Parties.”
59 The Final Payment Date was defined in clause 3.3 as follows:
“(a) The Buyer intends to operate the residential sign installation part of the Business for a period of twelve (12) to eighteen (18) months after the Completion Date (‘the residential sign installation period’);
(b) After completion of the residential sign installation period, the Seller will engage a subcontractor and provide them with appropriate training to assume the duties and obligations associated with the residential sign installation part of the Business;
(c) The Buyer will then be provided with appropriate training by the Seller to operate the commercial sign installation part of the Business;
(d) The Final Payment date will be the earlier of the following:-
(i)once the Buyer is satisfied with its ability to operate the commercial sign installation part of the Business; or
(ii)two (2) years after the Completion Date.”
60 Clause 3.4, under the heading “Security for Final Payment” provided:
“(a) For better securing the payment of the Final Payment, the Buyer hereby grants to the Seller the right to lodge a caveat against the title to the Buyer’s Property at any time after the signing of this Agreement, but not before settlement has taken place in relation to the Buyer’s Property which is expected to take place late January, 2014;
(b) The Seller agrees to pay all costs associated with the preparation, execution and lodgement of the Caveat against the title to the Buyer’s Property, including any costs associated with its removal.”
61 “Caveat” was defined as follows:
“Caveat means any caveat registered by the Seller upon the signing of this Agreement over the Buyer’s Property.”
62 While this contract was under negotiation and preparation, Mr Scaturchio said he was contacted by one of the Briner directors whom he identified as “Bill”. There is reference elsewhere in the evidence to a Briner director, Mr Bill Angelopoulos, and I take Mr Scaturchio to be referring to him. According to Mr Scaturchio:
“Bill said that the project managers who dealt with the people who did the commercial work were having a few problems with the owner of Expert Extensions, and Bill said that, ‘Look, it might be in your interest to maybe talk to Expert Extensions to see if you can buy them out’.” (T87, L25-30)
63 Mr Scaturchio said he telephoned Expert Extensions and spoke with the principal, Mr Travis McIntyre.
64 According to Mr Scaturchio, Mr McIntyre agreed to its sale “pretty much straight away … selling his vehicle, tools, and ongoing work with Briner as well as taking on the employees.” (T88, L3-5) The employees who were to be “taken on” were “Andrew and Jess”. (Ibid, L14) Mr Angelopoulos said that Expert Extensions was turning over Briner work “between $230-280,000 per year”, according to Mr Scaturchio. (Ibid L21-22) A Contract of Sale was executed on 5 July 2013, prepared on Expert Extensions Pty Ltd letterhead. It provided for the sale of a Mitsubishi Canter motor vehicle and a range of tools. There was a provision:
“The contract work of Briner along with Andrew Fisher and Jess Coates that currently work [on] the truck will be taken over by Sign Install as of Monday 8th of July 2013. They will have a position for a min of 3 mths in their current positions at the same rate of pay.” (PCB 151-2)
65 A minute of Directors Meeting of Keys as trustee of the Scaturchio Family Trust dated 2 July 2013 recorded:
“The Directors resolved to acquire the business of Expert Extensions as it will provide additional revenue and add to net profit.
The Directors resolved that the Motor Vehicle and Plant & Equipment will be purchased by Sign Install Pty Ltd.
The Directors resolved to adopt the existing License/service fee arrangement with Sign Install Pty Ltd.” (PCB 299)
66 The price paid was $51,000 or $52,000. (T288, L3-4) This represented payment for the Mitsubishi Canter and the tools. No payment had been made for goodwill at all. (Ibid L9-10) Mr Scaturchio agreed that he led Mr Trigg to believe that the Expert Extensions business would generate $75,000 profit per year initially and $150,000 a year eventually. (Ibid L24-30) According to Mr Scaturchio’s principal evidence, Andrew and Jess only stayed two days in the employ of Sign. (T290, L11-12) Mr Scaturchio said that the early departure was the result of an “inherited problem”. (Ibid L14-18)
67 Mr Scaturchio then raised with Mr Trigg the prospect of Mr Trigg and CAT purchasing the Expert Extensions commercial work. Mr Trigg said, according to Mr Scaturchio, in July 2013:
“…at this stage another opportunity had appeared at the eleventh hour and 59th minute which was an utter, utter surprise to me we now know it as Commercial 2 and at that stage I sickeningly realised that I had not, in fact, bought all of Briner’s commercial work. I thought I had and I can show you the spot on the floor where it happened, I was nearly vomiting when it was announced, but that’s a whole other question.” (T475, L1-9)
68 At the same time as the principal sale agreement was executed, viz 25 July, a second Asset Sale Agreement between Keys, CAT and the other parties was executed (PCB 179), selling similar assets, but this time in connection with the contract defined as follows:
“Contract means the ongoing verbal contract between Briner Ads and the Seller in connection with the Business in respect of the sign installations provided to the Seller by Briner Ads.”
The purchase price was $200,000 plus goods and services tax payable two years after. The completion date was 29 July 2013.
69 The form of this second agreement was generally similar to the form of the principal agreement, including all of the same “boilerplate” clauses together with a provision whereby Keys authorised the lodgement of a caveat against title to “the Buyer’s Property”. The price was $200,000 which was payable in full “two years after the Completion Date or earlier by agreement between the parties”.
70 Clause 7.1, under the heading “Seller assistance following Completion”, included inter alia:
“(c) the Seller will provide to the Buyer assistance and training in all aspects of the Business until the Final Payment Date, on a subcontractor basis at an agreed rate of $75,000 per annum to be paid on a weekly basis of $1,500 per week. The further terms and conditions are to be agreed upon between the parties.”
71 On 23 July 2013, Sign invoiced CAT $65,000 inclusive of GST for the Mitsubishi Canter formerly owned by Expert Extensions. (Defendant’s Court Book “DCB” 11). Payment of this amount was financed by a borrowing from ANZ Bank (Esanda) under a chattel mortgage. (DCB 132) A ledger statement from the bank shows the opening debit to this loan account as occurring on 19 August 2013, and presumably this represents the date of payment to Sign.
72 On the face of the two agreements, CAT and Mr Trigg were scheduled to take over sign installation on 29 July. Mr Scaturchio said, “Takeover of the business did happen on the day, but Craig didn’t actually start until weeks later”. (T99, L16-18)
73 Mr Scaturchio said that Mr Trigg:
“was running a wine distribution business and was trying to sell it, and was actually trying to sell it through the same broker who bought my business from, Valentines. So he was tied up with that a little bit. (Ibid, 20-24)
74 Once Mr Trigg acquired his own truck, he was ready to start, according to Mr Scaturchio “probably roughly two weeks after the completion date”. (T100, L1)
75 Mr Scaturchio sent his employee, Paul Debono, to provide training to Mr Trigg. (Ibid, L5-7) Mr Trigg said he spent five hours training on Saturday, 3 August with Mr Tony Scaturchio’s brother, Elio. (T472, L22-23)
76 Mr Trigg said that either on the night of Monday, 29 July, or the following Monday night, which would have been 5 August, he received a telephone call from Mr Scaturchio stating, “We'd better go down and get the truck. The boys aren't coming across. They're not working for us.” (T508, L6-8) Mr Scaturchio said, “Don’t worry about it”. (Ibid, L14-15)
77 Mr Trigg said he collected the Expert Extensions truck, the Mitsubishi Canter, which was a 2002 model and “wasn’t particularly well looked after”. (T508, L26-27) He said that it had no seatbelt. (Ibid, L30)
78 Mr Paul Debono, a long-time employee of Mr Scaturchio at one of his companies, had been installing commercial signage in that role. He took Mr Trigg out onsite in Mr Trigg’s truck to provide him with training. Mr Debono did this at Mr Scaturchio’s request and direction. This training lasted for a period of two weeks and was in the Mornington Peninsula zone. (T345, L3-15) The work was entirely residential and non-commercial. (Ibid, L16-18)
79 Mr Debono explained the various steps in erecting a simple residential real estate sign. He said, “It’s a go, go, go job”. (T346, L6) He said, “I'm agile, I've got to jump fences to put pegs in and that’s pretty much it”. (Ibid, L8-9) According to Mr Debono, “you can't sit around and sort of twiddle your fingers”. (Ibid, L12-13)
80 Asked if Mr Trigg “picked up” on the training that Mr Debono was giving him, Mr Debono said, “Well, yes and no. I could say not really, no”. (Ibid, L25-26) He continued:
“… what I was always aware of was every time he got out of the truck he'd just be there out of the truck and he'd just be looking at the paperwork, at every job”. (Ibid, L27-30)
81 Mr Debono said it was necessary to get the board off, put the legs on, etcetera. He had to keep saying, “Craig, come on, let’s go”. This was the pattern. (T347, L1-8) He did not believe that Mr Trigg attained a satisfactory standard. “It was sort of, like, a one-sided affair. I was pretty much doing a two-man job”. (Ibid, 10-12) Asked if Mr Trigg had the aptitude for this work, Mr Debono said “no”. (T348, L10)
82 Mr Trigg said that he engaged Mr Michael Wissell to work with him on the Peninsula run. Mr Wissell, he said, commenced work on 26 August. (T662, L30-31) According to Mr Trigg, his period of training with Mr Debono took place “a couple of weeks” after Mr Wissell commenced employment with CAT. (T663, L15) This would put those events sometime in September 2013, perhaps the middle of the month. (Ibid, L17-20) Mr Trigg was working with Mr Debono. Mr Wissell was paired with Mr Scaturchio for the two week period. (Ibid, L29-30)
83 Mr Moore put it to Mr Trigg that he undertook the two week training with Mr Debono before he engaged in any residential work. Mr Trigg replied, “absolutely incorrect”. (T664, L11-15)
84 The intended pattern at this early stage was that Mr Trigg was to do the Peninsula work; Coda, as an employee of CAT, would do the residential work in the northern and western zones of the metropolis; and Mr Scaturchio would continue controlling the allocation and execution of whatever commercial work came CAT’s way under either of the two asset sale agreements.
85 Problems and grievances on both sides quickly built up. Mr Scaturchio sent an email to Mr Trigg dated 20 October. He complained that, whilst Keys had invoiced CAT for “assistance and training” at the weekly rate of $1,500 per week, those invoices had been unpaid. Mr Scaturchio said, “Can you please get back to me with what your plan is regarding these [non] payments”.
86 The claims were made under clause 7.1(c) of the second asset agreement relating to the work previously done by Expert Extensions. (PCB 186) The email continued:
“Invoices at the moment stand at $65758.43 with more to come, payments are not being made as per agreed. The payments that are being made dont (sic) even cover expenses. This needs to be rectified, please respond with what your intentions are.” (PCB 232)
87 This latter paragraph appears to refer to work undertaken for Briner from which 70 per cent of the labour component was payable to Keys because of Mr Scaturchio’s continued control of the commercial work.
88 Mr Trigg replied the following day, stating that the second agreement was executed “on the basis” of Expert Extensions turning over $250,000 a year, yielding a profit after deduction of expenses of $130,000 per year. He said that the $1,500 per week was a management fee for Mr Scaturchio “managing” Andrew and Jess who were no longer in CAT’s employ.
89 Mr Trigg continued, alleging that there was, in effect, no additional work provided to CAT under the second agreement. Accordingly, he said there was nothing to manage and therefore no fee should be payable. Mr Trigg complained that Mr Scaturchio’s allocation of commercial work left him (Mr Scaturchio) and his company with the lion’s share and CAT and Mr Trigg “to feed on the scraps”. According to Mr Trigg, Mr Scaturchio “can’t have it all (no employees, all the work, and a management fee)”. (PCB 230)
90 The email continued at some great length, in substance alleging that effectively nothing had been acquired by CAT under the second agreement. (PCB 231)
91 On 25 October, Mr Scaturchio sent a short email to Mr Trigg, saying:
“I am getting a lot of shit from the guys at briner (sic) about your jobs, no photos, not much communication, jobs not done right etc, there is only so much I can do, what do you want me to do” (PCB 234)
92 Mr Trigg replied later that evening in a relatively lengthy email, denying any deficiencies in the work which he had done, stating: “I have never left a job without feeling proud of the end result”.
93 He said:
“I know I am the new boy on the block and if I say something, everyone else already at the club will band together and I will no doubt be made to suffer more”. (PCB 233)
94 Mr Beaumont of Beaumont Lawyers responded to Mr Trigg’s lengthy email of 21 October 2013 in a half page response dated 30 October 2013. He quoted clause 7.1(c) of the second sale agreement and stated, “There is no reference in this clause which suggests that it is in any way a management fee or condition”. He continued:
“Our client companies have complied with their obligations of the agreement and expect you to perform yours and to make the payments due under the contracts in a timely manner.” (PCB 236)
95 Mr Beaumont followed up with a further email dated 18 November, demanding that the $1,500 payments be made. (PCB 243)
96 Mr Scaturchio then sent an email dated 27 November 2013, which stated:
“After repeated attempts for a response to our differences regarding our agreement both from myself and Beaumont Lawyers it comes with great regret that effective immediately Sign Install will invoice Briner direct and will pay to Cat Enterprises money owed as per the agreement. Sign Install will provide you with a copy of the invoices for your records.” (PCB 247)
97 The following day, Mr Trigg said that the dispute:
“boils down to your personal desire to claim a management fee of $1500 per week for the two non-existent employees (Andrew and Jess) – something that I believe is not due”. (PCB 247)
98 He continued:
“Be aware that your current course of action as below will place you in immediate, indisputable and complete breach of your own contract and will carry dire consequences.” (PCB 247)
99 Explaining his email, Mr Scaturchio said:
“… Craig was not paying my invoices on time, and wasn’t invoicing Briner on time which meant delay in payments, and come to the situation that it was getting worse and worse.” (T120, L25-28)
100 Mr Scaturchio said that he had complained to Mr Trigg about failure to keep up-to-date with invoices to Briner and suggested:
“… that maybe I’d take some workload off him regards to invoicing Briner, and I said to him that I would to help the situation and to speed things on a bit that I would invoice Briner direct, and pass on your commission, and he was in agreeance (sic) with that, and that’s what happened. (T120, L31 – T121, L5)
101 The meeting where this agreement occurred was said to have been at Mr Scaturchio’s house (T327, L13), two or three weeks before the email. (Ibid, L27)
102 Mr Trigg denied agreeing to Keys or Sign billing Briner direct.
103 Mr Trigg continued to be aggrieved at what he perceived as an unfairness in the allocation of commercial work. He had sent an email to Mr Scaturchio on 7 November stating, “Please note that from Monday next week onwards I will assume the allocation of work”. (PCB 240)
104 Mr Scaturchio sent a short email later that day, stating: “before you do please check our agreement …”. (Ibid)
105 Mr Trigg replied, “there is nothing in the contract which precludes me from running my own business. This step, is a normal, logical and natural progression”.
106 Mr Trigg approached Briner, “asking them to give me the commercial work directly [so] that I could allocate it”. (T527, L10-12) He said there was no firm response and he inferred that nothing would change and it did not. (Ibid, L13-16) Mr Scaturchio therefore remained in control of the allocation of commercial business.
107 By December 2013, Mr Trigg said that he personally was doing “very little” Sign work. (T531, L11-13) The Peninsula run was being operated by CAT’s employee, Michael Wissell (Ibid, L14-16), and zone A was being operated by Coda. (Ibid, L17-18) Mr Trigg complained that he was looking for commercial work, “but there wasn’t any to be had”. (T532, L3-5)
108 John J Byrne, lawyer acting for Briner, wrote a letter dated 14 February 2014 to Mr Ricci in his capacity as a director of Ace. The letter was copied to the other directors, Mr Chun, Mr Cazaux, Mr Scaturchio [that is, Mr Elio Scaturchio], Mr Trigg and Mr Baranello.
109 The letter first complained of non-compliance with clause 4.5 of the agreement between Briner and Ace as to changes in directorship and control. The letter warned that Briner would “not in future accept that situation and [would] treat such an occurrence as a fundamental breach of the Agreement … giving Briner the right to terminate the Agreement”. The letter continued that the performance by Mr Trigg and CAT “of their duties is unsatisfactory generally, and in particular as to the following matters …”. There followed a series of specific complaints. The letter said that these matters constituted defaults by Ace, which would entitle Briner to take action to terminate the agreement. Nevertheless, it suggested that a plan be instituted with a trial period of 30 days to seek to resolve matters. Failing which, Briner would terminate the agreement and seek compensation. (PCB 276-278)
110 Mr Byrne sent a further letter on behalf of his client to the directors of Ace dated 28 March 2014, complaining that Briner’s concerns had “not been resolved so far as C.A.T. Enterprises Pty Ltd is concerned and no plan has been agreed or meeting held”. Mr Byrne proposed, as a last resort, a mediation under the auspices of the Small Business Commissioner. (PCB 282) A mediation was conducted but reached no resolution.
111 In March of the following year a legal practitioner, Ms Dominica Tannock of Beaumonts, wrote (presumably on behalf of Ace or the other directors of Ace) to Mr Trigg. The letter included some six enclosures, amongst which was a Notice of Directors’ Meeting for Ace to be held on 10 March 2015. The items on the Agenda were:
(i) to formulate responses to Briner’s most recent correspondence;
(ii) to consider termination of CAT Enterprises Pty Ltd as sub-contractor to Ace Sign Solutions Pty Ltd;
(iii) consider removal of Craig Trigg as Director of Ace Sign Solutions Pty Ltd.
112 The enclosures recorded continuing correspondence between Mr Byrne and Ms Tannock on behalf of Ace, in which Mr Byrne expressed continuing dissatisfaction with the estate of affairs on behalf of Briner.
113 One of the enclosures was an Infringement Notice issued by Hume City Council to Briner, alleging a breach of s66(1)(b) entailed in placing a sign on or over any infrastructure on a road reserve without written consent. The penalty sought was $443.
114 Another enclosure was a copy of a letter from Ms Tannock to Mr Trigg, stating that Mr Trigg had declined to attend a meeting at Briner held on 9 February 2015 to deal with the dispute. It detailed a number of alleged breaches of obligation by CAT and its employees, including one in which a Briner sign was damaged when a driver for CAT struck a low bridge, leaving the Briner sign on the roadway and failing to retrieve it.
115 There was also an allegation of a further local government infringement notice entailing a fine of $1,400. The letter demanded a response within seven days.
116 This material was emailed to Mr Trigg. (Exhibit C) He did not attend the directors’ meeting and the resolutions were carried. Mr Elio Scaturchio said he believed that the resolutions might not have been carried had Mr Trigg attended.
117 Mr Trigg said, “I confess I may well have received that email, but I did not open it”. He agreed with me that he had reached the stage where he just could not face this type of communication. (T725, L3-15)
118 The Ace agreement was not renewed upon its expiry in March 2016. Ace is now deregistered. (Exhibit D)
The proceeding
119 By its Amended Statement of Claim, Keys alleges both the original business sale agreement and the second. As to the original agreement, it was said that CAT began conducting the business sold under its terms on or about 29 July 2013, but failed to pay 70 per cent of the amounts invoiced by it for commercial sign installation work. It said that this failure constituted a repudiation, which Keys accepted.
120 Keys claimed the unpaid $150,000 final purchase instalment either as a debt or as damages for repudiation. It was said that by its actions in or about October 2013, CAT commenced to install commercial business signage manifesting its satisfaction with its ability to operate the commercial sign installation business and thereupon the $150,000 final instalment became payable.
121 As to the second agreement, it was said that it was completed on or about 29 July 2013, at which time CAT “commenced to conduct the second business”. It was said that CAT had failed or refused to pay $1,500 per week as required by the second agreement, and therefore evinced an intention not to be bound and repudiated the contract. Keys, it was said, accepted the repudiation. The purchase price was claimed either as a debt or as damages for repudiation.
122 Both the obligations of CAT, under the original sale agreement and the second sale agreement, were the subject, it was said, of guarantees and indemnities signed on 25 July 2013 by Mr and Mrs Trigg. They have failed to make payments under those guarantees despite demand.
123 Accordingly, Keys claimed, against each of CAT and Mr and Mrs Trigg, $350,000 either as a debt or as loss of bargain damages, amounts being 70 per cent of the invoice value of commercial work carried out by Keys on behalf of CAT, and amounts unpaid under the second sale of business agreement for training and assistance. There was also a claim for statutory interest and damages by way of interest in accordance with Hungerford v Walker (1989) 171 CLR 125.
124 In its Defence to the Amended Statement of Claim, CAT said that with respect to the second business sale agreement, Sign had:
“purchased only an old unroadworthy truck from a third party which it did not even transfer into its own name before Keys purported to sell it to Cat a week or so later falsely representing that it was part of a business.”
125 Further, it was said that at no material time did Keys actually purchase a business in connection with the truck. The second business, it was said, did not actually have any work and, even if Keys did become owner of the second business:
“At no material time [did it] actually [have] any work or contract for work verbal or otherwise that it carried out for Briner Ads or that it could sell to CAT.”
126 CAT admitted entering into the original sale of business agreement, but otherwise denied the allegations relative to it.
127 As to the claim for amounts representing 70 per cent of commercial work allegedly unpaid to Keys, it was said that the obligation to pay 70 per cent pertained only to ongoing commercial work currently provided to Keys by Briner. Therefore, there was no obligation to remit a 70 per cent share with respect to “any specific jobs done by Keys not commenced prior to 25 July”.
128 Alternatively, it was said that Keys never had any rights under the “Contract” as defined in the original business sale agreement, and therefore Keys had nothing to sell CAT, and any payments representing 70 per cent of the invoice amount “were not pursuant to the original business sale agreement but pursuant to some other agreement”.
129 Further, it was said that Keys had evinced an intention not to be bound by the terms of the original business sale agreement, and had thereby repudiated it, which repudiation CAT had accepted.
130 CAT contended that Keys had never completed the original business sale agreement and that the provision in clause 3.3(a) of that agreement stating that it intended to offer the residential sign installation part of the business for 12-18 months defined as “the residential sign installation period” was “purely precatory and never comprised a term or condition of that agreement”.
131 It was said that “any commercial signage installation undertaken by CAT in or after October 2013” was undertaken under the first sale agreement. In accordance with a second business agreement, it was said that Keys was to be employed under that agreement to “manage two employees”, who “were never assigned to CAT and never worked at all for CAT”. It was said the two employees never worked for Keys and “there was no additional work for these employees to do nor for Keys to do and/or manage”. Accordingly, Keys was not entitled to any payment.
132 CAT agreed that it had refused to pay a number of invoices rendered to it but said it was entitled to do so. As to the claims against Mr and Mrs Trigg, it was admitted that guarantees and indemnities were signed by them, but those guarantees and indemnities were said to be “conditional on the respective agreements being valid, not pursuant to force or misleading conduct” and that by virtue of misleading or deceptive conduct alleged in the counterclaim, “the said guarantees and indemnities are null and void”.
133 Paragraph 24A of CAT’s counterclaim described a series of alleged pieces of misleading or deceptive conduct on the part of Keys as follows:
“During the said discussions, Tony represented to Craig, that:
(a) Keys (pursuant to the business offered for sale) did all of Briner’s;
(i)domestic real estate work in geographical zones now known as ‘A&S’;
(ii)commercial work throughout Melbourne and Victoria;
(b) The gross revenue from Briner during the previous four years (FY’08 to FY’11) pursuant to the contract being purchased averaged $500,000 per year;
(c) That going forward, in order to fulfil the obligations required to earn this income, the following payments could be made by Craig and/or Keys:
(i)$105,000 per annum to pay subcontractor ‘Coda’;
(ii)$50,000 per annum to pay employee ‘Paul’;
(iii)65% of $345,000 per annum to Tony as a subcontractor to do the remaining/commercial work.
(d) That if Craig chose not [to] work in the business, he could earn $120,000 per annum (being the 35% commission from Tony’s work pleaded in 24A(c)(iii));
(e) That if Craig chose to actually work in the business, that he could do ‘Coda’s’ work, and as such, he would earn the $120,000 profit and $105,000 in gross revenue each year from actually working in the business;
(f) That Craig would receive on job the [scil on the job] training (as also required pursuant to clauses 8.1(a) to (c) of the Original Business Sale Agreement)
Particulars
The said representations were oral and implied. To the extent they were oral they were so by virtue of conversations between Craig and Tony to the effect alleged. To the extent the representations were implied, they were so to give business efficacy to the oral representations.
(g) That Keys had contractual rights to work with Briner that it could sell to Cat.
(h) That after settlement, Cat would have a contract with Briner for ongoing work.”
134 Further misleading or deceptive conduct was alleged by CAT in paragraph 24B of its counterclaim as follows:
“At a time after the representations in the preceding paragraph were made but before the Original Business Sale Agreement was entered into, Tony represented to Craig that:
(a) He could sell Craig Briner’s realestate (sic) work in another geographical location known as the peninsula area for an additional $50,000 (‘the Peninsula Run’)
(b) That the Peninsula work was worth an additional $100,000 to $120,000 per annum in gross revenues.
Particulars
The said representations were oral and implied. To the extent they were oral they were so by virtue of conversations between Craig and Tony to the effect alleged. To the extent the representations were implied, they were so to give business efficacy to the oral representations.”
135 These pieces of alleged misleading or deceptive conduct were said to have emanated from Mr Scaturchio “as to future matters” and were engaged in “with the intention that would be relied upon by [Mr Trigg]” and were made in trade or commerce as defined in s4 of Schedule 2 of the Competition and Consumer Act 2010. It was said that there was no proper basis for any of these representations. Specifically, “at no material time did Keys ever have any exclusive and or ongoing contract with Briner to install commercial signs in any location let alone zones A&S and or the Peninsula area and or anywhere else at all”. It was said that Keys never had any exclusive or ongoing contract with Briner to install real estate signs in the Peninsula area, and in reliance on the representations, Mr Trigg caused his company to enter into the original business sale agreement (paragraph 24G).
136 It was said that the original business sale agreement included a number of conditions precedent which were alleged at length and included the obligations to buy and sell the assets, various seller’s warranties as to Keys’ authority to sell and its obligation to make information available to CAT. It was said that clause 4.5 of the agreement between Ace and Briner gave Briner a right of veto which, in accordance with the provisions of the original sale contract, should have been disclosed. The sale transaction, it was said, engaged the operation of clause 4.5 of the agreement between Ace and Briner and none of the necessary steps had been taken. Disclosure of various matters pleaded as obligations under the contract were said to constitute conditions precedent to the original business sale agreement. Further, it was said that compliance with the seller’s warranties under the original business sale agreement was “a condition precedent” to that agreement.
137 Since those obligations were not complied with and therefore conditions precedent were not met, it was said the original business sale agreement was “void ab initio” or, alternatively, the non-disclosure of Briner’s “Right of Veto”, “constituted a representation that Briner placed no restriction on the transaction proposed in the Original Business Sale Agreement”. It was said that payment of $300,000 by CAT to Keys led Keys to be “unjustly enriched”. The counterclaimants, namely Mr and Mrs Trigg and CAT, were said to have suffered loss or damage by the breaches of the original agreement’s “preconditions”.
138 It was said that the two business sale agreements were subject to an “implied obligation of good faith implied by virtue of the operation of common law”, which was said to have particular consequences elaborated upon by s41B of the counterclaim. This course of action and alleged implied condition does not appear to have been pursued at trial, and so I will not elaborate upon it.
139 There was an allegation of misleading or deceptive conduct in connection with the second business sale agreement said to be introduced by the following statements made by Mr Scaturchio to Mr Trigg:
“(a) `There’s another part of the business you should buy also, it’s the other part of the commercial work from Briner’;
(b) `It’s turning over $250,000 per year and costs $100,000 to employ two guys and a further $20,000 in operating costs – that’s a profit of about $130,000 per year’.”
140 There were then various provisions of the second sale of business agreement alleged.
141 It was said that there was no contract in existence falling within the definition of the contract in this second business sale agreement and, accordingly, it was “void for the failure of consideration”. It was said that “there was no other part of the business that Cat was not buying pursuant to the Original Business Sale Agreement”. As to the second part of the alleged representation, it was said that they related to future matters within the meaning of s4 of the Australian Consumer Law and Keys “did not have reasonable grounds for making them”. They were said to be false, misleading and deceptive.
142 It was said that the representation as to the ability of Keys to transfer the contract with Briner without restriction was also false, misleading and deceptive. Relying on these representations, CAT had entered into the two business sale agreements. The representations were said to be contraventions of the Australian Consumer Law by being misleading or deceptive. Without those contraventions, it was said that CAT would not have entered into the business sale agreements. Contrary to the representations and in breach of the original business sale agreement, Mr Trigg was said to have “received only four hours ‘on the job’ training” and contrary to the representation, the Peninsula Run had gross revenues of circa $5,000 per month.
143 Briner’s dissatisfaction with Mr Trigg’s performance in commercial work and their withdrawal of it from him and CAT was said to be the result of a lack of training and Mr Scaturchio “prohibiting” Mr Trigg “from doing the work [he] wanted to do”.
144 As a result, Ace terminated CAT and removed Mr Trigg as a director. Mr Scaturchio, however, continued “to work directly for Briner post settlement”, as a result of which breaches the counterclaimants were said to have suffered loss and damage.
145 Finally, it was noted that caveat AL025311B had been lodged against the title of the dwelling at 9 Hooper Road, Wonga Park, the registered proprietor of the fee simple estate of which was Mrs Trigg. It was said that Keys did not have an interest in the land and the caveat was unlawful and should be removed.
146 In reply to the defendants’ Defence and Counterclaim, Keys said that the second business was the commercial sign installation business that was previously carried on by Expert Extensions for Briner. By way of defence to the Counterclaim, save for denials and non-admissions, Keys said that prior to 25 July 2014, Mr Scaturchio had told Mr Trigg:
“a) Sign Install installed and removed residential signs for Briner in the north western suburbs of Melbourne, and did other more difficult specialized signage work;
b) Sign Install was one of two companies that installed and removed commercial signage for Briner throughout Melbourne;
c) should Craig purchase the Original Business he would be given on the job training;
d) the revenue earnt and the payments made to subcontractors and employees were represented in the financial documents provided to Craig.” (PCB 32)
147 Keys said further, as to the “Peninsula Run”:
“(a) he had been offered the Peninsula Run by Briner at no cost to Keys;
(b) Bill, at Briner, had told Tony that the Peninsula Run was turning over around $80,000 gross per annum;
(c) Tony was willing to include the Peninsula Run in the sale at no cost to Craig.” (Ibid)
148 Keys admitted it did not have an exclusive contract with Briner to install commercial signs in zone A or any other location, or to install real estate signs in the Peninsula Run. Keys said that CAT relied on its accountant, John Moller of LMP Partners, for advice and made its own business judgment. Keys said that at all material times CAT was aware of the “Business Right of Veto” (sic).
149 As to the original business sale agreement, Keys said that CAT had acted upon it and taken benefits from it, in that Mr Trigg had become a director and shareholder of Ace, CAT conducted the business (as defined in the agreement) from and after the completion date and earned over $850,000 in revenue.
150 These actions, it was said, induced an assumption by Keys that CAT accepted ownership of the business, Keys would be paid the amounts owing under the agreement, and CAT accepted the terms of the original business sale agreement. Keys, it was said, relied on those assumptions and carried out installation work pursuant to the original business sale agreement for the benefit of CAT. If the assumption were “unfulfilled”, it was said that Keys “will have acted to its detriment”. Therefore, the defendants were said to be estopped from asserting that the original business sale agreement was void ab initio.
151 As to the second business sale agreement, they admitted that Mr Scaturchio had told Mr Trigg that he [scil CAT] could now buy the other part of the commercial work that Expert Extensions was doing for Briner. This, it was said, related to a distinct further business operation installing commercial signs for Briner.
152 Keys and Mr Scaturchio said that there was representation alleged against them as to on the job training but, in any event, Mr Trigg had received two weeks training. They admitted that Briner decided “in or about January 2014”, “to disallow [Mr Trigg] and CAT from doing any of its commercial work”. They admitted that Ace removed Mr Trigg as a director. They admitted that Keys carried out commercial work for Briner “post settlement of the Original Business Sale Agreement and up to about July 2015, pursuant to the terms of” that agreement.
153 As to the claim for the removal of the caveat, they admitted the primary allegation but said that Mrs Trigg “expressly granted [Keys] the right to lodge the caveat”. This authorisation was said to derive from the two business sale agreements.
Misleading or deceptive conduct – legal considerations
154 Section 18(1) of the Australian Consumer Law provides:
“A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”
155 Where a representation is made in trade or commerce as to future matters which do not eventuate as represented or at all merely to prove that the future did not turn out as represented does not in itself establish misleading and deceptive conduct. Bill Acceptance Corp Ltd v GWA Ltd (1983) 78 FLR 171
156 Following the Bill Acceptance Corporation case and to deal with the issues which it raised, the then Trade Practices Act 1974 was amended to deal with the issue of misleading or deceptive conduct as to future matters. These provisions in the Australian Consumer Law, the successor to that statute, are to be found in s4 of the Law which provides as follows:
“4 Misleading representations with respect to future matters
(1)If:
(a)a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and
(b)the person does not have reasonable grounds for making the representation;
the representation is taken, for the purposes of this Schedule, to be misleading.
(2)For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:
(a) a party to the proceeding; or
(b)any other person;
the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.
(3)To avoid doubt, subsection (2) does not:
(a)have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or
(b)have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation.
(4)Subsection (1) does not limit by implication the meaning of a reference in this Schedule to:
(a)a misleading representation; or
(b)a representation that is misleading in a material particular; or
(c) conduct that is misleading or is likely or liable to mislead;
and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation.”
157 The effect is that where a representation is made as to a future matter and the representor “does not have reasonable grounds for making the representation” then it is taken to be misleading (sub-s(1)). Sub-section 2 provides that in those circumstances the person making the representation “is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.” The result would seem to be that a plaintiff relying upon an allegation of misleading or deceptive conduct as to a present or past matter bears the onus of proving that it is misleading or deceptive, but where the representation in question is as to a future matter, an evidentiary burden of proving reasonable grounds, but not a legal onus of proof, lies upon the defendant representor.
158 Section 236 of the Law entitles a person who has suffered loss or damage inter alia as a result of misleading or deceptive conduct on the part of another to:
“recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention.”
159 In Parkdale Custom Built Furniture Pty Ltd v Puxu (1982) 149 CLR 191, speaking of s52 of the Trade Practices Act 1974, the predecessor of s18 of the Australian Consumer Law, Mason J, as he then was, said the relevant conduct:
“must mislead or deceive or be likely to mislead or deceive …” (Ibid, at 203).
160 Gibbs CJ said:
“Like most general precepts framed in abstract terms, the section affords little practical guidance to those who seek to arrange their activities so that they will not offend against its provisions. It has been held that the section is not confined to conduct that is intended to mislead or deceive: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd. There is nothing in the section that would confine it to conduct which was engaged in as a result of a failure to take reasonable care. A corporation which has acted honestly and reasonably may therefore nevertheless be rendered liable to be restrained by injunction, and to pay damages, if its conduct has in fact misled or deceived or is likely to mislead or deceive. The liability imposed by s 52, in conjunction with ss 80 and 82, is thus quite unrelated to fault …” (Ibid, at 197)
161 The necessary causal link between misleading or deceptive conduct on the one hand and the damage which compensation may be awarded under s 236 of the ACL typically is to be found in reliance by the plaintiff upon misleading or deceptive representations by a representor or defendant.
Misleading or deceptive conduct – the Evidence
162 In closing submissions, both counsel directed themselves initially to the allegations in the counterclaim by CAT and Mr and Mrs Trigg of misleading or deceptive conduct against Keys and Mr Scaturchio. Accordingly, I will turn first to this issue.
163 In his closing submissions on behalf of the Triggs and CAT, Mr Sandbach did not pursue a number of the pieces of misleading or deceptive conduct alleged against Keys and Mr Scaturchio. Those which he did rely on were as follows:
“(a) the Peninsula work was worth an additional $100,000 to$120,000 per annum in gross revenue;
(b) Keys had contractual rights to work with Briner that it could sell to CAT;
(c) CAT would have a contract with Briner for ongoing work after settlement;
(d) he [scil CAT] ought buy the `other part’ of the commercial work from Briner (which would give him [scil it] the whole of Briner’s commercial work); and
(e) the ‘other part’ of the Briner commercial work was turning over $250,000 pa.”
164 Mr Sandbach submitted that findings should be made upholding the making of the first of these alleged pieces of conduct.
165 Mr Moore, however, submitted:
“The sequence of events in so far as the offers were made strongly suggest that the Peninsula Run was simply included in Mr Scaturchio’s counteroffer of $450,000 which was accepted by Mr Trigg.”
166 He pointed out that the last offer by CAT and Mr Trigg before the $450,000 price under the original business sale agreement was accepted was $370,000. Allocation of a further $50,000 by reference to the alleged valuation of the Peninsula Run at that figure “would have put any counter-offer at $420,000 … the counter-offer of $450,000 bears no relationship to the inclusion of the Peninsula Run at a price of $50,000”.
167 Mr Trigg alleged, and Mr Scaturchio denied, that Mr Scaturchio said the Peninsula Run would turn over $100,000-$120,000 per annum. The sole corroborating evidence for Mr Trigg’s account is a page of handwritten notes taken from an exercise book, which Mr Scaturchio agrees Mr Trigg used to take notes in the course of their negotiations. The relevant page is at PCB 157. It identifies a number of turnover figures for various elements of the undertakings which the transactions between the parties ultimately purported to sell, from Keys to CAT.
168 Mr Moore noted that according to the evidence of Mr Trigg, and in conformity with a designation which he placed on the page many months later and in preparation for the trial, the notes pertain to a discussion which Messrs Trigg and Scaturchio held at some time in July 2013.
169 As the narrative above shows, the price of $450,000 seems to have been agreed upon when the “Binding Heads of Agreement” document was reworked on 11 June. Therefore, submitted Mr Moore, aside from any other difficulty that might face CAT in reliance upon this matter by way of defence and counterclaim, it could not be said that if Mr Scaturchio had valued the Peninsula Run at $100,000-$120,000 per annum turnover, it was something which could be seen as having been relied on by CAT to offer $450,000 for Keys’ business and enter into the first business sale agreement.
170 There are a number of difficulties with Mr Moore’s submission on this point. First, 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.
171 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.
172 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.
173 Despite Mr Scaturchio’s denials for the reasons explained, I accept that a representation was made as to the Peninsula Run having a revenue turnover of $100,000-$120,000 per annum and 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.
174 According to paragraph 24C of the counterclaim, this representation, which I have found to be misleading or deceptive, was made “as to future matters”. Without tracking the provisions of the Australian Consumer Law dealing with misleading or deceptive conduct as to future matters, I note Mr Moore correctly observed that where representations as to future matters are alleged to be misleading or deceptive, it is for the person who made the representations as to the future to establish that there were reasonable grounds for the representations to be made. This entails a sort of reverse onus [but see section 4(3)].
175 It is far from plain that the representation alleged, which I have found to be established, was as to a future matter. Since the best predictor of the future is the past, typically, in discussing the value of a business, one focuses upon its performance in the past upon the assumption that such performance can be expected to persist into the future. At any rate, independently of any incidence of onus of proof, the evidence establishes that this Run did not have the turnover which was represented.
176 Mr Scaturchio’s own evidence as to the Peninsula turnover depended upon whether one is guided by his evidence-in-chief or his evidence under cross-examination, would put the turnover at $80,000 per annum or $50,000 per annum.
177 Mr Moore, on this subject, drew attention to the level of invoices recorded in the summary analysis of Briner invoices derived from subpoenaed material from Briner, which showed for the financial year 2013-2014, “which would cover something like 11 months or perhaps a bit less, Craig, $85,945”, at a time when Mr Trigg was concentrating on real estate work in the Mornington Peninsula. The same figure for the year 2014-2015 was $98,865.91, the latter figure being close enough to the lower figure of the range represented by Mr Scaturchio as to Peninsula turnover viz $100,000. But there are problems in uncritically adopting this attribution.
178 According to Mr Trigg, some of the work attributed as having been carried out by him was in fact done by Mr Wissell, being smaller commercial work informally allocated to Mr Wissell by Briner outside the normal allocation regime. (T704-705) These figures are not therefore a reliable guide to the level of residential work on the Peninsula.
179 Again, Mr Tsakonas, the Managing Director of Briner, said that the Peninsula Run was “viable” for two days of the week only, perhaps Wednesdays or Fridays, where there might have been a sufficient number of installations, perhaps six, to justify the trip to this relatively remote area beyond the edge of the metropolis. (T756) If installations were required on another day or a lesser number on one of these two days, the service would nevertheless have to be provided (Ibid), despite being unprofitable.
180 In paragraph 24D of the counterclaim, it is pleaded that “At no material time was there any proper basis” for the representation.
181 Even although this pleading is clearly based upon the premise that what was entailed was a representation as to the future rather than the present or the past, a view which I am inclined to reject, it is sufficient in substance to entail an allegation of falsity. The relevant cause of action is made out.
182 The next representation alleged to have been made and said on behalf of CAT and the Triggs to have been misleading or deceptive was that “Keys had contractual rights to work with Briner that it could sell to CAT”. There is no basis for the suggestion that it was represented to Mr Trigg that there was an existing contract capable of being assigned to CAT covering commercial work which, under the two sale of business agreements, constituted two-thirds of the turnover which CAT and Mr Trigg supposed they were purchasing.
183 Mr Trigg’s evidence, on which he was vigorously challenged but which he stoutly maintained, was that there had been a promise by Mr Scaturchio to obtain a contract covering commercial work but that this would be done after the contract or contracts were signed.
184 There is an element of implausibility in this. It may be accepted that Mr Trigg was concerned to have ongoing contracts from Briner which could be assigned to CAT. This was the first matter taken up in the email which he sent to Valentines following his consultation with an accountant. Yet, if he was promised that a contract or contracts would be obtained, the most obvious way of dealing with this issue would be to include a promise to that effect in one or both of the sale contracts. These were not simple contracts of adhesion. Drafts were prepared, at least one of which was produced by Mr Trigg under cross-examination. If he were given an assurance as to the provision of a contract for commercial work after the contract was executed, the most obvious way of protecting his company’s position and his and his wife’s as guarantors of its obligations, would have been to have a promise to the alleged effect included in the contract. None was.
271 The Reply filed on behalf of Keys dated 8 December 2015 does not deal specifically with the allegation of repudiation and is therefore taken to be a simple denial. If there were repudiation, it might be thought that upon the evidence insofar as Mr Trigg and CAT “soldiered on” into 2015, they elected to affirm the contract rather than accept the repudiation and that it was too late as at the date of filing of the original Defence to elect to accept the repudiation. There was no pleading on this point and no argument.
272 In the circumstances, it would be inappropriate for me to act upon any such view. The better view, I think, is that the alleged or actual breaches of warranty were not of sufficient gravity to evince an intention on the part of Keys not to be bound by the principal or original sale agreement.
273 Mr Sandbach’s submission quoted at [265] above appears to refer to paragraph 10A of his clients’ Defence which is summarised at [130] above. Paragraph 10A of the Defence includes an otherwise unparticularised cross-reference to paragraphs 20-54A of the Counterclaim. Paragraph 10A, as noted in [130] above, refers to clause 3.3 of the original business sale agreement which states as follows:
“(a) The Buyer intends to operate the residential sign installation part of the Business for a period of twelve (12) to eighteen (18) months after the Completion Date (‘the residential sign installation period’);
(b) After completion of the residential sign installation period, the Seller will engage a subcontractor and provide them with appropriate training to assume the duties and obligations associated with the residential sign installation part of the Business;
(c) The Buyer will then be provided with appropriate training by the Seller to operate the commercial sign installation part of the Business;
(d) The Final Payment Date will be the earlier of the following:-
(i)once the Buyer is satisfied with its ability to operate the commercial sign installation part of the Business; or
(ii)Two (2) years after the Completion Date.
According to the pleading, this clause was “purely precatory and never comprised a term or condition of that agreement”.
274 It was not explained what “precatory” in this context meant. This is a word which is used relative to the construction of Wills to denote a provision which expresses the wishes of a testator which he desires to record in his Will and asks those involved, principally one would think the Executor or Trustee, to carry into effect but without imposing a legal obligation. I do not recall any explanation in Mr Sandbach’s submissions as to how or why the provisions quoted should be regarded as purely precatory and not as stating legal obligations. There may be good reasons for recording mere wishes in a Will. Mere wishes would seem out of place in a commercial contract. I heard no detailed or specific submissions as to the construction of this clause in the principal Sale of Business Agreement.
275 What occurred appears consistent with what is provided for in the clause. Indeed, the pleaded contention on the part of CAT and Mr and Mrs Scaturchio that these provisions were “purely precatory” seems implicitly to admit that if the words did create legal obligations then Keys and Mr Scaturchio had proceeded in a manner consistent with those provisions. Mr Scaturchio’s stated position was that at no material point was Mr Trigg ready and able to perform the commercial work. Mr Trigg disagreed with this, but Mr Debono’s evidence quoted at [80] above, and the strictures of Briner and the other operators in Ace are also consistent with Mr Scaturchio’s view. Mr Trigg approached Briner seeking to assert control over commercial work allocations, but it seems Briner declined to refer commercial work directly to him [106] above.
276 In all those circumstances, I do not believe it would be proper to make a finding of repudiation against Keys on this score. Moreover, I do not believe that there is any specificity in the pleading or that any submission was made to me as to what constituted CAT’s acceptance of the alleged repudiation or when that occurred. This proceeding was initiated by Keys and CAT and Mr Trigg seem to have continued to accept whatever work could be had from Briner, as long as it was offered. To put it another way, there appears to be no point at which CAT or Mr Trigg sought to abandon the business on the basis that the arrangements with Keys had been terminated by its acceptance of Keys’ repudiation.
Other contractual claims
277 Paragraph 53 of the Counterclaim complains that despite the provisions of the original business sale agreement and the second business sale agreement, Mr Trigg did not receive the training which he was entitled to receive and that Mr Scaturchio prohibited him from doing work that he wanted to do, and Mr Scaturchio interfered in the orderly changeover of the business from Keys to CAT.
278 These matters, it was said, led Briner to cease allowing Mr Trigg and CAT “to do any of their commercial work from in or about January 2014”. This claim is not borne out by the evidence. As quoted above at paragraph 92, Mr Trigg said that he never left a piece of installation work that he was not proud of. According to Mr Trigg, the difficulties in CAT’s relationship with Briner resulted from Briner’s persecution. (T710, L17 – T711, L5) He said it was all Briner’s fault. He denied that the problem derived from any lack of skill or application on his part. (T713, L7-18)
Disposition of counterclaim
279 I find two pieces of misleading or deceptive conduct established.
280 The first pertains to the original business sale agreement and was to the effect, “the Peninsula work was worth an additional $100,000 to $120,000 per annum in gross revenues”. (See [163]-[181]) The second pertains to the second business sale agreement or “commercial 2”.
281 At the conclusion of the hearing on 28 September, I invited counsel to re-open their closing addresses. They requested that this be done by written submissions. I was extremely reluctant, complaining that my invariable experience of such arrangements was that they broke down because one or both counsel became involved in other matters which led to the time limits not being observed. I also complained that written submissions deprived me of the opportunity of engaging in Socratic dialogue with counsel as to the matters in the submissions.
282 With great reluctance, and, as it turned out most unwisely, I was prevailed upon to agree to written submissions being filed and served by 6 October upon the assumption that the transcript of the hearing on the 28th would be available “in a couple of days”, perhaps on Tuesday, 3 October.
283 As it turned out, the written submissions were delayed, first, by an unexplained tardiness in provision of the transcript and, secondly, by the subsequent illness of one of the members of counsel which entailed his hospitalisation.
284 One party filed and served its submissions on 10 October, but the other party did not file and serve until 19 October. (T969-73)
285 The Prayer for Relief in the Counterclaim, leaving to one side an issue relative to a caveat to which I will turn below, seeks the following relief:
“B. a declaration that First Defendant by Counterclaim engaged in misleading and deceptive conduct within the meaning of the ACL as amended from time to time;
C. a declaration of Second Defendant by Counterclaim engaged in misleading and deceptive conduct within the meaning of the ACL as amended from time to time;
D. a declaration that the amount owing pursuant to the following is nil;
(a)the Original Business Sale Agreement;
(b)the Second Business Sale Agreement;
E. Damages;
F. Interest;
G. Costs;
H. Such further or other orders as the Court considers appropriate.”
286 I have heard expert evidence as to the value of the business sold. I have not, however, heard comprehensive submissions specifically as to what relief ought to be granted by reason of the findings of misleading or deceptive conduct which I have made. That extensive submissions have not been made on behalf of Keys and Mr Scaturchio on this subject is perhaps unsurprising. These parties made some submissions as to these matters but there was nothing to respond to from CAT and the Triggs. The case for Keys and Mr Scaturchio was that no adverse findings should be made and there was little, if anything, to respond to put on behalf of CAT and Keys as to what relief ought to be given.
287 As to the plaintiff’s claim, its fate depends crucially upon what disposition is made on the counterclaim. In the circumstances, I propose listing the matter for further argument as to what relief should be given upon the counterclaim. There might be much to be said for receiving written submissions and seeking to deal with the matter “on the papers”, but the unhappy experience that I have already had in this proceeding leads me to reject that possibility. I should, however, deal with a miscellany of other matters at this stage.
Alleged repudiation of second contract
288 Mr Moore pointed out that despite there being submissions made to the effect that the second business sale agreement should be adjudged as having been repudiated by Keys, there was no plea to that effect in the counterclaim.
289 Mr Sandbach submitted, “the court ought act on [the evidence] and find that Contract 2 was repudiated by the Plaintiff if it ever had any force or effect”. He referred to the judgment of Dawson J in Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279, 297. As I remarked during the re-opening hearing on 28 September, Mr Moore had taken a principled stand based on the pleadings. In my view, his clients are entitled to have this matter determined in accordance with the pleading and I reject the invitation from Mr Sandbach to make a finding as to an unpleaded allegation of repudiation relative to the second business sale contract.
Unjust enrichment
290 Paragraph 39 of the Counterclaim states that some $300,000 was paid by CAT by way of a deposit of $50,000 and a completion payment of $250,000 on 29 July 2013.
291 Paragraph 40 states, “In the premises, Keys has been unjustly enriched”. As Mr Moore correctly observed, there is no general cause of action for unjust enrichment. Rather, there are a number of individual causes of action which, if made good, may demonstrate unjust enrichment of a defendant at the expense of a plaintiff creating an entitlement of recovery for the plaintiff. These matters are not elaborated upon in the counterclaim and there seems to be no link to the prayer for relief except, perhaps, insofar as it seeks “further or other relief”.
Damages
292 Paragraph 54 of the Counterclaim alleges loss or damage by reason of contravention of the Australian Consumer Law and seeks an order for damages pursuant to s236. The largest item sought is $300,000 paid as consideration under the original business agreement, together with a number of other items. It will be a matter for submission whether these amounts should be awarded in combination with other relief under the Australian Consumer Law in substitution for other relief and whether these alleged pieces of loss and damage are in fact made out.
293 I wish, at this stage, to make a finding as to one item on the list. The particulars of loss and damage were amended by a revised statement dated 28 August 2017 which claim the amount of “$150,000 net per year by two years of income that would have been derived as an Industrial Engineer between mid-2013 and mid-2015. Total $300,000”. This was based upon a suggestion that, had Mr Trigg not been engaged in sign installation work, he could have earned $200 an hour as a consultant doing international consultancy work. Mr Trigg was available to do international consulting work at a rate which averaged $US750 a day. (T574, L12) When available, he could work 200 or 220 days a year. (Ibid, L21-22)
294 This seems to be the basis for the claim. The suggestion was that had he not been engaged in sign installation work he could have been deriving income at these rates. His failure to derive that income resulted from his having been misled and deceived. This work would have required Mr Trigg to travel outside Australia and it will be recalled the rationale for his company’s purchase of the business from Keys was a desire to avoid having to travel overseas.
295 I would reject this claim. First, it was never adequately documented. (T737, L1) Secondly, the fact that Mr Trigg engaged in a variety of businesses in Australia, including a business providing short-term accommodation and wine distribution (T596, L21-30) and an enterprise distributing imported underwear and similar items out of a leased factory in Bayswater with the use of a Ford transit van, all suggest a distinct preference to work within Australia or, perhaps, a lack of the abundant consultancy business which the particular head of damages assumes was available to Mr Trigg and CAT. This claim should fail.
Caveat
296 In April 2014, solicitors acting for Keys lodged caveat AL025311B claiming an estate or interest nominated as “an estate in fee simple” on behalf of Keys:
“Pursuant to Asset Sale Agreement dated 25 July 2013 between Keys Consulting Pty Ltd, CAT Enterprises, Craig Trigg and Julie Trigg and Antonio Ralph Scaturchio. Pursuant also to further Asset Sale Agreement also dated 25 July 2013 between all of the same parties as previously noted.”
297 The relevant provision said to give rise to the entitlement to make the claim and lodge a caveat is to be found in the case of the first business sale agreement at clause 3.4. (PCB 207) The clause states:
“(a) For better securing the payment of the Final Payment, the Buyer hereby grants to the Seller the right to lodge a caveat against the title to the Buyer’s Property at any time after the signing of this Agreement, but not before settlement has taken place in relation to the Buyer’s Property which is expected to take place late January, 2014;
(b) The Seller agrees to pay all costs associated with the preparation, execution and lodgement of the Caveat against the title to the Buyer’s Property, including any costs associated with its removal.”
298 There are a number of observations which one might make as to this clause. First, whilst it refers to securing payment of money and authorises the lodgement of the caveat, there are no operative words such as would be appropriate to create an interest in favour of Keys, for instance, as a chargee. One would expect the clause to have the landowner state that it “hereby charges” its land with the payment of the relevant sum of money. As I recollect, the authorities are not as one as to whether a clause which merely authorises the lodgement of the caveat is regarded as apt to create a caveatable interest in favour of the beneficiary.
299 More pertinently, any interest in the nature of a charge does not accord with the interest claimed, namely an estate in fee simple. There is and was no application on behalf of Keys before the court to amend the relevant caveat. Thirdly, the buyer – CAT – did not and does not own the subject property which is the residence of Mr and Mrs Trigg. They are the registered proprietors. Again, there is no claim before the court on behalf of Keys for rectification of either of the sale agreements on this score.
300 Mr Sandbach submitted on behalf of Mr and Mrs Trigg:
“Keys has no arguable, let alone prima facie, claim to the estate claimed by it in the caveat (CB 285). The owner of the land never granted any interest to it. If any interest does arise under the contracts it is not on any view an estate in fee simple.”
301 Mr Moore does not appear to have made any submissions as to the caveat. I accept Mr Sandbach’s submissions. Mr and Mrs Trigg are entitled to have the caveat removed.
Illusory contract?
302 In his further submissions following the re-opening of the evidence on 28 September, Mr Sandbach submitted:
“The defendants’ case concerning Contract 2 as pleaded is that the contract was illusory in that there was no ‘other part of the business’ that was not encompassed by Contract 1 … If any meaning may be ascribed to the definition of ‘Contract’ in Contract 1 (PCB 203) as at 25 July 2013 it plainly encompasses all the commercial work referred to in the definition of ‘Contract’ in Contract 2 (PCB 181).”
303 According to Mr Sandbach, the evidence of Mr Scaturchio on 28 September and Exhibit F, that is the banking records for Sign for the period July to August 2013:
“…both confirm that the arrangements between Expert Extensions Pty Ltd and Sign Install Pty Ltd took effect before 25 July 2013. Accordingly, all commercial work provided to Sign Install by Briner for former Expert Extensions’ ‘clients’ was encompassed by the definition of ‘Contract’ in Contract 1. Scaturchio never transferred the Contract 2 ‘business’ to CAT and never accounted to CAT for any commercial work other than in accordance with Contract 1.”
304 In my consideration of the defendants’ allegations of misleading and deceptive conduct against Mr Scaturchio and his company, I have rejected the view that before entry into the second contract, Mr Scaturchio had given Mr Trigg to understand that he was, by the initial arrangement given Mr Trigg, to understand that CAT was purchasing the entitlement to do all of Briner’s commercial sign installation work, at least in metropolitan Melbourne. I have accepted Mr Trigg’s evidence that he believed that, but concluded that this was his assumption rather than something that he was specifically given to understand by Scaturchio.
305 Both sale of business agreements were entered into on 25 July 2013. At that stage, Mr Trigg was well-aware that Keys was possessed of additional commercial work which it had acquired by purchasing assets from Expert Extensions and that this work was to be sold separately under the second business sale contract. This understanding was mutual to the parties. These are matters which were known to both parties and which establish objective background facts in their mutual contemplation. They are admissible in and of the construction of the two sale contracts (Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352 per Mason J as he then was). Therefore, I do not accept Mr Sandbach’s contention that, as a matter of construction, the reference to “contract” in the First Business Sale Agreement should be regarded as encompassing the former Expert Extensions work.
306 Mr Sandbach footnoted a reference to sub-paragraph 1(b)(iv) of the defendants’ Defence and Counterclaim which states inter alia:
“that Keys as the purported owner of that business [the former Expert Extensions business] at no material time actually had any work or contract for work verbal or otherwise that it carried out for Briner Ads or that it could sell to Cat.”
307 Presumably, the reference to “verbal” should be taken as a reference to an “oral” contract. CAT and Mr Trigg were well-aware that there was no written contract relative to the Expert Extensions work. At most, there was some form of oral understanding. Given that it is common enough to sell the goodwill of a retail business where the selling business owner has no ongoing contracts with his customer, it seems to me to overstate the situation to say that there was nothing to sell. Moreover, the evidence which I refer to above indicates 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.
308 Accordingly, I reject the contention that the second sale of business contract was illusory on the ground described above.
Expert opinions
309 In a report dated 7 December 2016, Mr Bruce Wilkinson, chartered accountant, giving evidence on behalf of the plaintiff, provided a valuation of the business of Sign. (PCB 443-68) By reference to this company’s sales for the period 7 January 2009 to 30 June 2012, Mr Wilkinson observed “that the business is reliant upon Briner Ads as it represents 75% of the total revenue for the period”. (Paragraphs 4.8 and 4.9, PCB 450-51)
310 By reference to IBIS World L7852 Graphic Design Services, issued August 2012, Mr Wilkinson observed that in the period 2011 to 2012, revenue in the relevant industry was expected to grow by 1.2 per cent with a growth annually of 3.4 per cent per annum “through to 2018”. (Paragraph 4.13, PCB 451) He said, “the industry costs benchmarks are as follows: purchases at 36%, wages at 19.4%, rent at 2.9% and net profits at 7%. (Clause 4.14, PCB 452)
311 Following an analysis of the relevant financial statements, Mr Wilkinson said that for valuation purposes he “adopted the capitalisation of earnings approach”. (Clause 7.22, PCB 460) Mr Wilkinson valued the business at $238,000 made up as follows:
Assessed Maintainable EBIT $136,000
Assessed multiple applicable 1.5 to 2.0 times
Value of Business $204,000 to $272,000
Mid-point $238,000.
312 To this he added Net Non-Operating Assets $353,888, reaching the figure “Value of Equity” at $591,888.
313 Giving evidence on behalf of the defendants, Mr Greg Cusack, a member of the Society of Certified Practising Accountants and an Associate Member of the Institute of Chartered Accountants, in a report by way of letter to the defendants’ solicitors dated 12 July 2016 (PCB 424), concluded that “the value of the adjusted net operating assets reported in the balance sheet [of Sign Install] as at 30 June 2012 was negative $46,705, representing a fair market value of the business of NIL.” (PCB 425)
314 He concluded:
“the average adjusted profits for the period 2010 to 2012 financial year is $153,553, with a capitalisation rate of Zero, reflecting the maintainable earnings in the foreseeable future of Nil. This opinion is based on Sign Install having no ongoing contracts in place with the average of 82.76% of income received during this period from one customer (Briner Pty Ltd).” (Ibid)
315 Mr Wilkinson, in giving his valuation, assumed that the work that Sign did for Briner was subject to a written contract. It was not his practice as a valuer to seek a copy of the contract and consider its terms. (T418, L9-11)
316 Mr Wilkinson agreed that, had he been aware of the true contractual situation, he would not have provided so high a figure for future maintainable earnings. (T419, L4-6) He added, “but I wouldn’t have come up with zero as a capitalisation rate” (Ibid, L10-12)
317 Amongst the non-operating assets shown on Sign’s balance sheet was a BMW motor vehicle with a written-down value of $74,921. (PCB 468, T420, L2-6)
318 Mr Wilkinson said that his valuation of the Sign business of $238,000 represented the value of the assets of the business rather than the shares in the company. (T420, L18 – T421, L6)
319 Mr Wilkinson agreed that he was guided by the depreciation schedule relative to plant and equipment and included, for instance, a generator as part of the value of the business despite the fact that it operated in metropolitan Melbourne and the Mornington Peninsula. (T421, L18 – T422, L8)
320 Mr Wilkinson said that, had he been asked to value a hypothetical business “which was a hundred per cent reliant on Briner, no option, no question of other sources of custom”, then his capitalisation rate would reduce. (T426, L10-16) He said the maintainable earnings would be 25 per cent less at least, on average. (Ibid, L17-20)
321 Mr Wilkinson said he assumed that there would be a proper handover period and process for the purposes of a hypothetical sale and not just a walk in/walk out arrangement. (T430, L8-19)
322 According to Mr Wilkinson, even where a business was confined to a single customer, working with the single customer would build up know-how and reputation and provide the purchaser of such a business with a platform from which to grow it to other customers. (T432-3)
323 Mr Wilkinson said that since the only work that was being sold in the present case related to Briner, non-Briner portions should be stripped out and therefore the maintainable earnings would fall by 25 per cent. (T434, L13 – T435, L3)
324 Asked about the operation of the Ace agreement with regard to residential work, Mr Wilkinson said:
“If all the work that was transferred was under some contract or some arrangement, it would actually increase the multiple that I've used. But if it is only a portion of it then obviously it comes back to sort of more the level that I'm talking ‑ that I've used in the report.” (T436, L16-21)
325 The Ace contract was some sort of enhancement to the value of the business, whether it covered one-third or two-thirds of the relevant business. (T437, L16 – T438, L5)
326 Mr Cusack, under cross-examination, was asked to reconsider his valuation in light of the existence of the Ace contract, which was assumed to cover some $150,000 worth of residential work as against $350,000 in commercial work. (T768, L2-4) He was asked to consider that the residential work was transferrable with Briner’s consent. (Ibid, L13-19)
327 Mr Cusack said his valuation would not change if there was no written consent from Briner. (T769, L11-19) He said that if written consent were forthcoming, there would be “some value in this business”. (Ibid, L29-30)
328 Mr Cusack was given further particulars of the Ace contract, including the fact that Sign or CAT could access it only as a shareholder in Ace. He said it would be necessary to:
“look at the fixed overheads of the wages to actually be able to service the residential component of the business, which is the $150,000. So I notice that the payroll there was 120 to 140 thousand to service the full amount of the turnover.” (T770, L25-29)
329 According to Mr Cusack, if there is no written contract with a single customer, a business so dependent would have no valuable goodwill. (T771, L22-24)
330 Mr Cusack was then asked whether his views would change if he were aware that there was a transition arrangement up to two years and that the vendor would be entitled to 70 per cent of the gross renderings for the commercial business with the purchaser receiving 30 per cent only.
331 Mr Cusack’s response was:
“I look at 70 per cent of $350,000 to be in the vicinity of 250,000. If you take 250,000 as a cost off your average EBITDA at 140, it leaves a negative.” (T773, 8-11)
332 He said, accordingly the commercial side of the business should be ascribed no value. (Ibid, 13-15)
333 Mr Cusack observed that it was proper to write the motor vehicles in Sign’s balance sheet down to zero for valuation purposes because they were not part of the sale. (T773, 21 – T774, L9)
334 Mr Cusack said he was fortified in his view as to the dubious value of the Ace contract because Sign or CAT would be a minority shareholder with “little say in the distribution of work”. (T774, L21-28)
335 In my view, Mr Cusack’s approach accorded with reality in a way which Mr Wilkinson’s did not. Mr Wilkinson was largely a victim of inadequate information. He was made aware, for instance, that the only work which was being sold and the only asset by way of goodwill which should be valued, was the Briner work. He was not made aware that for the larger portion of renderings, namely commercial work, there was no written contract or commitment at all and, as to the residential work, the commitment by Briner was qualified, indeed being mediated, through the position for either Sign or CAT as a minority shareholder in Ace. Mr Cusack made a very telling point in noting the effect of the arrangements in the original sale of business agreement as to the execution of commercial work with 70% of billings being payable to Keys or Sign Install. What actually happened in this case demonstrates the wisdom of Mr Cusack’s much more sceptical approach to the value of the business sold than the one adopted by Mr Wilkinson.
Implied term of Good Faith
336 The counterclaim included extensive pleadings based upon an alleged implied term of good faith dealing. This was not mentioned by Mr Sandbach in his closing address. I take it to be abandoned.
Orders
337 This proceeding stands adjourned to a date to be fixed, at which time the court will hear submissions as to the orders to be made upon the defendants’ counterclaim and the plaintiff’s claim.
338 The costs are reserved.
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