Locke v Lepple Pty Ltd [No 4] - [2012] WADC 133

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: LOCKE -v- LEPPLE PTY LTD [No 4] [2012] WADC 133

CORAM: BIRMINGHAM QC DCJ

HEARD: 10-12, 19 & 21 OCTOBER 2011

DELIVERED : 31 AUGUST 2012

FILE NO/S: CIV 987 of 2006

BETWEEN: MAXWELL THOMAS LOCKE
Plaintiff
AND
LEPPLE PTY LTD
Defendant

Catchwords:

Contract - Terms - Essential terms - Termination - Assignment of debt - Trade practices - Misleading and deceptive conduct - Damages - Duties of counsel

Legislation:

Trade Practices Act 1974 (Cth)
Insurance (Agents and Brokers) Act 1984 (Cth)
Legal Profession Conduct Rules 2010

Result:

Judgment for plaintiff for $440,376.74
Defendant's counterclaim dismissed

Representation:

Counsel:

Plaintiff: Mr P A Kyle
Defendant: Mr A P S Hershowitz

Solicitors:

Plaintiff: Haynes Robinson
Defendant: Griffiths & Godecke

Case(s) referred to in judgment(s):

Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570
Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
Bowler v Hilda Pty Ltd (1998) 80 FCR 191
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592
City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94
Concrete Constructions Group v Litevale Pty Ltd [2002] NSWSC 670; (2002) 170 FLR 290
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Ghirardi v Allregal Corporation Pty Ltd [2001] WASCA 366
Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No1) (1998) 39 FCR 546
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115
Lepple Pty Ltd v Locke [2007] WASCA 170
Locke v Lepple Pty Ltd [2007] WADC 7
McGrath & Honey v Australian Naturalcare Products Pty Ltd [2002] FCAFC 2
O'Neill v Medical Benefits Fund of Australia Ltd [2002] FCAFC 188
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Process Minerals International Pty Ltd v Consolidated Minerals Pty Ltd [2011] WASCA 219
Serrata Investments Pty Ltd v Rajane Pty Ltd (1991) 6 WAR 419
Shone v Davies [2012] WASCA 83
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514

BIRMINGHAM QC DCJ:

Background

The plaintiff is a retired insurance broker.
In the mid‑1980's the plaintiff established an insurance broking business that traded as Locke Holdings Pty Ltd (Locke Holdings). The income of the business was derived from two streams; first, broker's fees that it charged to its clients on whose behalf it placed insurance (fees) and, secondly, commissions paid to it by insurers with whom the insurance had been placed on behalf of its clients (commissions).
At all material times the defendant traded as Progressive Insurance Brokers (the defendant). Mr David Jones was one of the principals of the defendant.
During the period from 1991 to 2001, the plaintiff and Mr Jones developed a close professional relationship, whereby the plaintiff would pass some of the Locke Holdings broking business through the defendant, where the defendant had access to insurers who were able to offer insurance cover to Locke Holdings' clients at better rates than otherwise available to Locke Holdings. Pursuant to this arrangement the defendant would place the insurance for Locke Holdings' clients and the defendant and Locke Holdings would share the commission paid by the insurer on a 50/50 basis. Locke Holdings would continue to receive 100% of the fees that it charged to its clients for whom insurance was placed.
Throughout this period Locke Holdings continued to place insurance for its other clients with insurers independent of any involvement by the defendant. This included a considerable amount of workers' compensation insurance that was placed with the State Government Insurance Commission (SGIO).
In mid‑June 2001, Locke Holdings was in desperate financial straits and indebted to a number of insurers with whom it had placed business but failed to remit the premiums that it had received. Locke Holdings (and the plaintiff) had imprudently invested funds received from its clients in respect of premiums payable, other than in the manner required by s 26 and s 27 of the Insurance (Agents and Brokers) Act 1984 (Cth) (the Act). Premiums then due to insurers with whom business had been placed were not paid in accordance with the agreed terms. In particular, Locke Holdings had failed to remit some $250,000 of premiums received to SGIO and its accreditation as a broker with SGIO was cancelled. Together, with other insurers, SGIO commenced recovery proceedings and threatened the plaintiff's bankruptcy.
By late June 2001 Locke Holdings had insufficient funds in its broking account to make payment of the premiums then due to the insurers.
At this time Mr Jones and his fellow director, Mr Medling became aware of Locke Holdings' plight. The collapse of Locke Holdings would be catastrophic for the defendant. At that time, over 90% of the defendant's business comprised clients referred to it by Locke Holdings on a shared commission basis.
On about 27 June 2001, the plaintiff approached Mr Jones with a proposal to sell the Locke Holdings business to the defendant.
It is common ground that the following day the defendant agreed to purchase the Locke Holdings business and that thereafter, with the assistance of the plaintiff and Locke Holdings staff, the intellectual property and the client base of Locke Holdings was transferred to the defendant with effect from 1 July 2001.
It is further common ground that the parties agreed that the purchase price would be calculated with reference to an agreed percentage of the income the defendant derived from the former clients of Locke Holdings for the financial years ending 2002, 2003 and 2004.
One of the terms of the sale agreement was that Locke Holdings was to close its trust account and remit to the defendant such funds it had received in respect of renewals for the 2001 - 2002 financial year.
It is common ground that upon a reconciliation of the moneys that had been received by Locke Holdings, of the sum of $70,580 received by Locke Holdings, only $20,000 was remitted to the defendant, such payment being made on 25 July 2001 and subsequently passed on to insurers with whom insurance had been placed.
On 7 August 2001, Mr Jones wrote to the plaintiff and advised that the defendant did not intend to proceed with the purchase of the Locke Holdings business. Thereafter, the defendant refused to pay the purchase price. The defendant contended that the plaintiff had breached an essential term of the sale agreement relating to the transfer of the trust funds and accordingly, the agreement was at an end.
On 20 August 2001 the plaintiff was declared bankrupt and shortly thereafter, a receiver was appointed to Locke Holdings. A liquidator was appointed to Locke Holdings in June 2002.
In 2004, the plaintiff, with the approval of the Supreme Court of Western Australia, obtained from the liquidator of Locke Holdings an assignment of the chose in action in respect of Locke Holdings' entitlement to recover from the defendant the purchase price that had been agreed to be paid upon the sale of the business.

Pleadings

The statement of claim is as follows:
1.Locke Holdings Pty Ltd (Locke Holdings) is and was at all material times a company registered under the Corporations Act and is in liquidation.
2.The defendant is a company registered under the Corporations Act and trades under the name Progressive Insurance Brokers.
3.By an oral agreement between Locke Holdings and the Defendant it was agreed that:
(i)Locke Holdings would sell and the Defendant would purchase the goodwill of Locking Holdings' business as a registered insurance broker including the particulars of its clients and other intellectual property;
(ii)The Defendant would pay to Locke Holdings a purchase price of:
(a)70% of the annual commissions and fees payable to the Defendant in the year ending 30 June 2002 in respect of insurance policies arranged by the Defendant for the former clients of Locke Holdings;
(b)50% of the annual commissions and fees payable to the Defendant in the year ending 30 June 2003 in respect of insurance policies arranged by the Defendant for the former clients of Locke Holdings; and
(c)30% of the annual commissions and fees payable to the defendant in the year ending 30 June 2004 in respect of insurance policies arranged by the Defendant for the former clients of Locke Holdings;
(iii)The percentages of annual commissions and fees payable to Locke Holdings in each year would be payable upon receipt of such commissions and fees;
(iv)The handover of the goodwill of the business would take place with effect from 30 June 2001.
PARTICULARS OF AGREEMENT
The agreement was made orally by the Plaintiff for Locke Holdings and one Dan Jones for the Defendant at the office of Locke Holdings on or about 27 June 2001.
4.Pursuant to the agreement Locke Holdings transferred the goodwill of its business to the Defendant on or about 30 June 2001.
PARTICULARS
The goodwill was transferred by the following actions:
(a)Locke Holdings handed over to the Defendant details and records of all of its clients and their respective insurance policies;
(b)Locke Holdings wrote to each of its clients by letter dated 29 June 2001 informing them that the Defendant had acquired the insurance business of Locke Holdings;
(c)Locke Holdings handed to the Defendant details and records of its 'multicover' insurance portfolio;
(d)Locke Holdings made available its employees to assist the conduct of its insurance business by the Defendant over the period of the handover in or about July 2001.
5.Following the handing over of the details and records of the clients of Locke Holdings to the Defendant the Defendant received the following commissions and fees in each of the years ending 30 June 2002, 2003 and 2004 in respect of insurance policies arranged by the Defendant for those clients.

Year

Commissions

Fees

Total

2002

$110,000

$118,000

$228,000

2003

$114,000

$48,000

$162,000

2004

$107,000

$42,000

$149,000

6.By reason of the facts pleaded in Paragraph 5 hereof the purchase price payable pursuant to the agreement is the sum of $285,300 being 70% of the commissions and fees earned by the Defendant for the 2002 year, 50% of the commissions and fees earned by the Defendant for the 2003 year and 30% of the commissions and fees earned in the 2004 year.
7.In breach of the agreement, by letter to Locke Holdings dated 14 August 2001 but received by Locke Holdings on 7 August 2001, and by further letter from the Defendant's solicitors to Locke Holdings dated 13 September 2001, the Defendant refused to pay the purchase price or any part thereof.
8.Pursuant to section 477(2B) of the Corporations Act and by a deed of assignment made 14 November 2005 between Jennifer Elizabeth Low as liquidator of Locke Holdings Pty Ltd (in liquidation) and the Plaintiff, the Plaintiff became entitled to the causes of action of Locke Holdings against the Defendant pleaded above.
9.Notice of the assignment of the cause of action was given to the Defendant by letter dated 28 March 2006 from Kyle & Company, the Solicitors for the Plaintiff, to Griffiths & Godecke, the Solicitors for the Defendant.

By its defence the defendant pleads:
1.The defendant admits paragraph 1 of the Amended Statement of Claim ('the Statement of Claim') and pleads that at all material times Locke Holdings Pty Ltd ('the company') carried on business as insurance brokers and intermediaries.
2.Save to state that the defendant:
(a)is the trustee of the Jones Family Trust;
(b)is the trustee of the Oakbridge Unit Trust; and
(c)at all material times in entering into the Contract referred to in paragraph 3 below, was acting in its capacity as the trustee for the Jones Family Trust trading as Progressive Insurance Brokers,
the defendant admits the allegations contained in paragraph 2 of the Statement of Claim.
3.The defendant pleads that by an agreement between the company and the defendant made orally on or about 29 June 2001, the plaintiff agreed to transfer its then current 2000‑2001 insurance client base to the defendant and the defendant agreed to acquire the company's then current 2000‑2001 insurance client base on the following terms and conditions:
(a)the company would close its business operations;
(b)the plaintiff would cause the company's business to address correspondence to all the company's clients advising them that he was retiring and he was transferring all the client's insurance business to Progressive Insurance Brokers, being the trading name of the defendant;
(c)the company would pay over to the defendant all insurance premiums held in its trust account which it had received for the 2001/2002 period ('the trust premiums');
(d)the company would after payment of the trust premiums to the defendant close its trust account and endorse all cheques to the defendant that were received subsequent to the closure;
(e)the plaintiff would write to ASIC requesting cancellation of his insurance license;
(f)in consideration for all of the above and subsequent to the company paying the trust premiums to the defendant in full, the defendant would pay to the company over a period of three years a percentage of the brokers fee earned by the defendant as follows:
(i)70% of the broker's fees for the first year;
(ii)50% of the broker's fees for the second year; and
(iii)30% of the broker's fees for the third year.
('the Contract').
4.Save as aforesaid, the defendant denies that he made the agreement with the company alleged in paragraph 3 of the Statement of Claim or any agreement as alleged or at all.
5.Save to admit particulars (b), (c) and (d) to paragraph 4 of the Statement of Claim, the defendant denies that the company transferred the goodwill of its business to the defendant as alleged or at all and denies the remaining allegations therein.
6.Save to admit that the defendant received commissions in each of the years ending 2002, 2003 and 2004 the defendant refers to the terms of the Contract referred to at paragraph 3 above and denies the remaining allegations contained in paragraph 3 above and denies the remaining allegations contained in paragraph 5 of the Statement of Claim.
7.The defendant denies the allegations contained in paragraph 6 and 7 of the Statement of Claim and says that:
(a)the company was not ready able and willing to pay the trust premiums to the defendant in accordance with the terms of the Contract;
(b)the company failed to pay to the defendant all of the trust premiums under the terms of the Contract;
(c)the company was unable to comply with its mutual obligations under the Contract; and
(d)accordingly the company is unable to claim payment of the brokers fees.
Particulars
(i)By way of facsimile dated 26 July 2001 the company acknowledged in writing that trust premiums in the sum of $50,458.56 were due and owing to the defendant.
(ii)Letter from the company to the defendant dated 3 September 2001.
(e)pursuant to a request by the company and in anticipation of the trust premiums to be paid by the company the defendant advanced and paid to the company the sum of $8,748.72.
Particulars
(i)Cheque number 401763 dated 12 July 2001 in the sum of $8,837.55.
(ii)$88.83 is to be deducted from the sum of $8,837.55 as it relates to payments earned prior to the entry into of the agreement.
(iii)Facsimile from the company to the defendant dated 12 July 2001.
8.Alternatively, the performance of the Contract became, without any fault on the part of the defendant, impossible and the Contract was frustrated and the defendant was thereby discharged from further performance of the Contract.
8A.Further, as to paragraph 6 and 7 of the Statement of Claim, the defendant pleads that the plaintiff utilised the trust premiums to pay the company's expenses contrary to s26 and s27 of the Insurance (Agents and Brokers) Act 1984 and the plaintiff does not come to court with clean hands.
9.Further, as to paragraph 6 and 7 of the Statement of Claim, the defendant pleads that although the company/plaintiff was at all material times fully aware of the facts relied upon in the Statement of Claim, it was guilty of prolonged, inordinate and inexcusable delay in bringing this action and seeking the relief claimed herein, and it thereby caused or permitted the defendant to believe, as in fact it did that the company/plaintiff did not intend to make the claim herein, and in this belief the defendant acted to its prejudice.
10.In the premises, the company/plaintiff by its conduct waived its right (if any which is denied) to claim the alleged or any relief against the defendant and it is inequitable and unjust to grant the plaintiff the alleged or any relief.
11.The defendant does not admit the allegations in paragraph 8 of the Statement of Claim.
12.The defendant admits receipt of the letter dated 28 March 2006 but denies the remaining allegation contained in paragraph 9 of the Statement of Claim.
13.Further and/or in the alternative to paragraph 3 to 12 above, the defendant pleads that on or about 29 June 2002 and during negotiations between the company and the defendant for the sale of the company's current insurance client base, the plaintiff on behalf of the company orally represented to the defendant that:
(a)the trust account of the company was in credit to the extent of the trust premiums received from its current clients for the 2001/2002 period;
(b)the company would upon conclusion of the Contract forthwith pay to the defendant the trust premiums held in its trust account
('the Representations').
14.In reliance upon the Representations, the defendant entered into the Contract referred to at paragraph 3 above.
15.The Representations were false, misleading and deceptive or were to likely to mislead and deceive contrary to the Trade Practices Act 1974 in that:
(a)the plaintiff misappropriated the trust premiums held by the company in its trust account and utilised the trust premiums to pay his and/or the company's expenses;
(b)at the time the company made the Representations, there were no trust premiums held in the trust account of the company; and
(c)the company had no intention of paying the trust premiums to the defendant.
Particulars
(i)On 25 July 2001 the plaintiff orally advised Daniel Jones of the defendant that the company no longer had any trust premiums as he had spent the trust premiums on bills.
(ii)By way of letter dated 3 September 2001 the company acknowledged it was unable to pay the trust premiums amounting to $50,458.56.
16.At all material times the making of the Representations constituted conduct in trade and commerce by the company which was misleading or deceptive or which was likely to mislead or deceive in contravention of s.52 of the Trade Practices Act in that the Representations induced the defendant to enter into the Contract with the company and to suffer loss and damage by reason thereof.
17.If which is denied, the defendant has any liability to the plaintiff, then the defendant relies on a set off of $50,458.56 representing the trust premiums which the company failed to pay to the plaintiff pursuant to the Contract.
COUNTERCLAIM
18.The defendant repeats paragraphs 14 to 18 of the defence.
19.As a result of the company's contravention, the defendant is entitled to orders pursuant to s.87 of the Trade Practices Act 1974.
AND THE DEFENDANT COUNTERCLAIMS against the plaintiff as follows:
(a)An order refusing to enforce all of the provisions of the Contract;
(b)Alternatively a declaration that the Contract is rescinded;
(c)Costs of suit;
(d)Further and/or alternative relief.

The plaintiff pleaded by way of reply and defence to counterclaim:
1.The Plaintiff denies each and every allegation in Paragraph 3 of the Defence.
2.As to Paragraph 7 of the Amended Defence:
(a)The Plaintiff admits that it was unable to pay some insurance premiums received by it.
(b)Denies that it was obliged to pay any insurance premiums under the terms of the contract.
(c)Alternatively says that, if it was obliged to pay any insurance premiums under the contract, then its failure to do so was not such a breach of the contract as would entitle the Defendant to be discharged from its obligations under the contract.
3.The Plaintiff denies each and every allegation in Paragraph 8 and 8A of the Amended Defence.
4.The Plaintiff denies each and every allegation in Paragraph 9 of the Amended Defence. At all material times the Defendant knew or should have known that the Plaintiff intended to make the claim by virtue of a letter from the Liquidator of Locke Holdings Pty Ltd to the Defendant dated 20 August 2002 and Notice of an Application by the Liquidator to the Supreme Court of Western Australia for approval of the assignment of the cause of action against the Defendant dated 26 May 2005.
5.The Plaintiff denies each and every allegation in Paragraph 10 of the Amended Defence.
7.If, which is denied, the Plaintiff made any representation to the Defendant as alleged in Paragraph 14 of the Amended Defence the Defendant did not enter into the contract in reliance upon any such representation.
8.The Plaintiff denies each and every allegation in Paragraph 15, 16 and 17 of the Amended Defence.
DEFENCE TO COUNTERCLAIM
9.The Plaintiff repeats Paragraphs 1 – 8 hereof and denies that the Defendant is entitled to any order pursuant to S.87 of the Trade Practices Act.

The pleaded issues

The issues that were live on the pleadings at the commencement of the trial were:
1.the terms of the agreement and whether the purchase price was calculated by reference to a percentage of both commissions and fees or fees alone for a period of three years at the agreed percentage rates;
2.whether the requirement of Locke Holdings to pay to the defendant the insurance premiums held in its trust account for the 2001 - 2002 financial year was an essential term of the contract, breach of which entitled the defendant to rescind the agreement;
3.whether the plaintiff was ready, willing and able to perform its obligations so as to be entitled to specific performance;
4.Whether the plaintiff's entitlement to relief was defeated by the equitable defences of:
(a)unclean hands; or
(b)laches.
5.whether Locke Holdings' chose in action to recover the purchase price from the defendant was assigned to the plaintiff;
6.whether the plaintiff represented to the defendant that the trust account of Locke Holdings was in credit to the extent of the premiums received from its clients and that he would, upon entering into the agreement, forthwith pay the defendant the premiums held;
7.whether the representation, if made, constituted conduct that was misleading or deceptive for the purpose of s 52 of the Trade Practices Act 1974 (Cth) (TPA);
8.what, if any, entitlement the defendant has to damages in respect of the misrepresentation and any contravention of s 52 of the TPA;
At the outset, it is important to recognise that the plaintiff did not seek equitable relief by way of specific performance of the contract, but rather, payment of the agreed purchase price pursuant to the agreement. Such fact was acknowledged by the defendant counsel, somewhat belatedly, during the course of the trial and thereafter, the equitable defences of laches and unclean hands were abandoned.

The issues for determination

The live issues for determination at the completion of the evidence and addresses were:

What were the terms of the contract, including the basis for the calculation of the purchase price of the business?

It is common ground that the defendant was to pay the purchase price calculated upon an agreed percentage of the income earned in respect of insurance policies arranged by the defendant for the former clients of Locke Holdings over the three years following the sale. The critical issue in dispute however, is whether the income upon which the agreed percentage rate is to be applied comprised commissions only, fees only or commission and fees, that is to say, the gross profit generated by the former clients of Locke Holdings.
The plaintiff contends that the purchase price was the agreed percentage payable for each of the three subsequent years by reference to the annual commissions and fees generated by the former clients of Locke Holdings.
It was the defendant's case that the prescribed percentage was to be applied to those broker's fees received by the defendant from the former Locke Holdings clients during the agreed period when calculating the purchase price to be paid.
It is an agreed fact that, for the purpose of trial, the commissions and fees received by the defendant, generated by the former Locke Holdings clients, during the subsequent three year period are the figures set out in par 5 of the statement of claim.

Was the plaintiff's obligation to pay to the defendant those premiums that it had received in respect of the 2001 - 2002 financial year renewals an essential term of the agreement?

The defendant says that it was a fundamental term of the agreement that the plaintiff remit to it those funds that Locke Holdings had received from its insured clients in respect renewal premiums for the 2001 - 2002 financial year, said to then be in the Locke Holdings trust account.
The defendant says that when the plaintiff failed to remit the premium funds it was entitled to rescind the agreement by a notice given on 7 August 2001.
The plaintiff admits that it was a term of the agreement that such funds would be transferred to the defendant, however, contends that it was not an essential term that entitled the defendant to terminate the agreement.

Was the defendant entitled to rescind the agreement to purchase the business by its letter of 7 August 2001?

Was Locke Holdings' chose in action against the defendant assigned to the plaintiff?

The defendant's counterclaim: Did the plaintiff make the representations pleaded in paragraph 13 of the defence and, if so, was it conduct in breach of s 52 of the TPA, such as to entitle the defendant to avoid the agreement or alternatively damages?

Legal principles

The terms of the agreement made between the parties are to be found by what each party, by words or conduct, would have led a reasonable person in the position of the other party to believe. Construction of what the parties intended the words used to mean is to be determined objectively.
In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40] referring to Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, the High Court expressed the position as follows:
This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean.
Counsel for the defendant urged me to have regard to the post‑contractual conduct of the parties to support a finding that the purchase price was to be calculated with reference to broker's fees only. I do not consider that it is appropriate to do so in this case. As a matter of general principle, it is not legitimate to use, as an aid in the construction of a contract, anything which the parties said or did after it was made; see: Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570 [35].
The contract and its terms, once established upon the evidence that I accept, are to be construed as at the date that it was entered into and the post‑contractual conduct relied upon by the defendant is not admissible for such purpose: see Process Minerals International Pty Ltd v Consolidated Minerals Pty Ltd [2011] WASCA 219 [98] - [99] (Murphy JA with Martin CJ and Newnes JA agreeing).

Essentiality of terms agreed

Whether the requirement for Locke Holdings to remit the funds held in its broker's account in respect of 2001 - 2002 premiums paid to the defendant was an essential term turns on the proper construction of the agreement.
In DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; Stephen, Mason & Jacobs JJ expressed the position as follows:
… the quality of essentiality depends … on a judgment which is made of the general nature of the contract and its particular provisions, a judgment which takes close account of the importance which the parties have attached to the provision as evidenced by the contract itself as applied to the surrounding circumstances.
In Shone v Davies [2012] WASCA 83 [80]-[81] Murphy JA (Martin CJ and Buss JA agreeing) expressed the issue of essentiality and construction as follows:
An essential term is one where the parties have agreed that any breach of it will always justify termination by the innocent party. See Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 [47] - [48], [56], [69] - [70]; Tramways Advertising v Luna Park (641 - 642).
In determining whether the promisee would not have entered into the contract unless he or she was assured of strict compliance with the relevant term, the court has regard to 'the intention of the parties as appearing in and from the contract ... from the general nature of the contract considered as a whole or from some particular term': Tramways Advertising v Luna Park (641).
Further, as Murphy JA observed in Shone v Davies [83], a construction that will encourage performance rather than avoidance of contractual relations is preferred:
There is a preference for a construction that will encourage performance rather than avoidance of contractual relations. In Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549, 556 - 557, Mason ACJ, Wilson, Brennan & Dawson JJ said:
'In deciding whether a promise has the status and effect of a condition, courts are not too ready to construe a term as a condition and, at least where other considerations are finely balanced, will hold that a term is of such a kind that breach of it does not give rise to an automatic right to rescind. This approach is explained by a preference for a construction that will encourage performance rather than avoidance of contractual obligations: Cehave NV v Bremer mbH [1976] QB 44; Bunge Corporation [1981] 1 WLR 715; [1981] 2 All ER 541.'
Consistent with the approach to prefer a construction that will encourage performance rather than avoidance of contractual obligations is the law's policy to limit rights of termination to 'instances of serious and substantial breach of contract': Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 [52]; Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632, 641 - 642.
If the parties have not themselves indicated that a term is essential, the court must necessarily proceed on an objective assessment of its practical importance based on all of the relevant evidence.
That will necessarily require consideration as to whether breach by the plaintiff would deprive the defendant of substantially the whole benefit which it was intended it should obtain from purchase: cf Koompahtoo v Sanpine [49] ‑ [50]; whether the breach could be described as gross and its consequences be regarded as serious: Koompahtoo v Sanpine [71] and whether a breach of that term could be remedied in damages.
A term is more likely to be considered essential if damages for its breach are inadequate or an inappropriate remedy in the circumstances: Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, 557.

The evidence

Maxwell Thomas Locke

Background

The plaintiff is an 81‑year‑old retired insurance broker. In the late 1980's he established the insurance broking business known as Locke Holdings. The business focussed on arranging workers' compensation and personal accident insurance for clients engaged in the building and construction industry. The gross profit of the business was derived from commissions paid by insurers with whom insurance had been placed and brokerage fees charged to clients of the business.
The plaintiff said that during the 1990's he developed a relationship with Mr Jones, a principal of the defendant, whereby, the insurance requirements of some of Locke Holdings' clients would be placed with those insurers with whom the defendant had the capacity to obtain a better rate. The commissions earned from the insurers on such business were shared equally.
Locke Holdings received 100% of the broker's fees it charged its clients.
The plaintiff said that prior to 2001 he had advanced funds and offered the facilities of his office to support another party unrelated to Locke Holdings' business. Such investment was not authorised under the Act. This action had drained the resources of Locke Holdings and by early 2001, its financial position had deteriorated badly. It had acute liquidity problems and was unable to pay the premium funds received by it that were then due to a number of insurers, including SGIO.
The plaintiff said that he had also used some premium funds received by him for company and personal expenses, rather than remitting the funds to the underwriters with whom the insurance had been placed.
By June 2001, the plaintiff's accreditation as a broker with SGIO had been withdrawn and a number of insurers were making demand for payment of outstanding premiums.
The plaintiff decided that the only option for him was to sell the Locke Holdings business.

Sale of business and terms

The plaintiff said that he made some enquiries and was informed that the 'industry norm' for the valuation of an insurance broking business was 1.5 times, or 150% of the annual gross profit in the audited accounts for the previous 12 months. Based on this assessment, the plaintiff valued the Locke Holdings business at $535,000.
The plaintiff said that on 27 June 2001, he rang Mr Jones and arranged to see him to enquire as to whether the defendant wanted to buy the Locke Holdings business. The plaintiff said that he approached Mr Jones as he knew him better than anyone else in the industry.
The plaintiff said that he met with Mr Jones and his fellow director, Mr Medling, the next day at the defendant's office in Nollamara. He informed them that he wished to sell the business and explained the reasons why.
He said that Mr Jones and Mr Medling told him that they were aware of his financial predicament and that he had lost his accreditation with SGIO. They requested all relevant information about the business. The plaintiff said that he then informed them of the difficulties he had had over the past two years that had given rise to his financial problems. He told them that he was waiting for offshore funds to enable him to settle with the insurers and that he owed SGIO $250,000.
The plaintiff said that in response to Mr Jones' query, he said that Locke Holdings had received some premium renewals from its clients in respect of the 2001 - 2002 period and that such funds had been placed in the Locke Holdings trust account. Those funds were held by Locke Holdings on account of premiums received and were to be remitted to the respective insurers, with whom the insurance had been placed in accordance with Locke Holdings' terms of trade. The plaintiff said that he told Mr Jones that he had also used some of the funds for company expenses and a small amount for personal expenses.
The plaintiff said that he told Mr Jones and Mr Medling that the industry norm for the valuation of the business was 1.5 times gross profit or income for the previous year and that he calculated the value of the Locke Holding business to be $535,000.
The plaintiff said that he told them that he would do everything to assist a handover, including, offering the continuing services of both himself and his staff upon any sale to ensure an orderly transfer.
The plaintiff said that when he had informed Mr Jones that he had also spoken to another party in relation to a possible joint venture and then identified that party, Mr Jones became upset and asked him to not speak to anybody else.
Mr Jones said to the plaintiff that he and Mr Medling would discuss the matter and get back to him the following day.
The plaintiff said that Mr Jones attended his office the next day. At that time Mr Jones made a counter‑proposal whereby instead of paying for the Locke Holdings business in a single upfront payment, the defendant would pay the purchase price over three years on a basis of 70% of the income in the first year, 50% in the second year and 30% in the third and final year.
The plaintiff said that price was to be calculated at the agreed percentage of the renewals of the former clients of Locke Holdings for each year that transferred to the defendant. He understood it to refer to the gross income received from those former clients, comprising both commissions and fees. The plaintiff said that this was the basis upon which the purchase price of the business had been discussed the previous day when he met with Mr Jones and Mr Medling.
It was agreed that payment of the purchase price was to be by way of monthly instalments calculated upon the commissions and fees received each month by the defendant in respect of those former Locke Holdings clients who transferred their business to the defendant.
The plaintiff said that he was not then in a position to insist upon payment of the purchase price up front and accepted the defendant's proposal.
The plaintiff said that he and Mr Jones then discussed what was to be done to complete the sale. It was agreed that a letter would be sent by the plaintiff to all of Locke Holding' clients informing them that he intended to retire with effect from 30 June 2001 and directing them to deal with the defendant.
In cross-examination, the plaintiff acknowledged that his amended statement of claim, filed in May 2006 and on 16 April 2009 respectively, referred to 'annual commissions'. He was unable to offer any explanation as to why broker's fees were only included in an amendment to his statement of claim in May 2010 (exhibit N4).
The plaintiff further accepted that his letter to the defendant on 3 September 2001 was poorly worded when he had used the words 'fees' together with 'commission, fees and brokerage'. He said that at the time he was under considerable stress due to his financial circumstances and trying to get the defendant to make the payments of the purchase price.
When cross-examined on the use of the term 'a percentage of the commissions earned' in his affidavit sworn 22 April 2008 (exhibit O), the plaintiff said that such phrase referred to the income of the business as an all embracing term including brokerage. He said that it was always understood that commission was of an all embracing term that included the commission paid by the underwriter and the broker's fees paid by the insured, that is to say, the income received by the business.

The plaintiff said that the plaintiff's intellectual property, its client computer records and over 12,000 client files and records were transferred to the defendant with effect from 30 June 2001. At the same time, a pro forma letter in a form agreed by the parties was sent to each of Locke Holdings' clients (exhibit 1), informing them that the business of Locke Holdings had been acquired by the defendant and requesting them to continue their insurance business with the new owner.
Further, the plaintiff took all necessary steps to close the business, including informing ASIC and the various insurers that Locke Holdings had ceased trading and that the defendant had taken over the business and its former clients.
The plaintiff said that over the ensuing weeks Locke Holdings staff assisted in the transfer of the business to the defendant.
During this period, the defendant paid to Locke Holdings fees of $8,837.55, representing 70% of the fees earned on policies that had been renewed by the former clients of Locke Holdings after 1 July 2001.
The funds paid to the plaintiff at this time were described on the accompanying remittance advice (exhibits 5 A-C) as 'commission' notwithstanding that, upon closer analysis, the sum remitted was referable to 70% of the broker fee that had been paid by the client with the premium. The form of the remittance advice was seemingly unchanged from that used prior to the sale under the previous arrangement where commissions had been shared and any broker's fees had already been deducted by Locke Holdings.

Payment of renewals received

The plaintiff said that it was agreed that those payments which had been received by Locke Holdings in respect of insurance renewals for the 2001 ‑ 2002 period and retained in the trust account were to be transferred to the defendant.
The plaintiff's evidence in relation to this aspect was as follows:
HERSHOWITZ, MR: So your approach was to Dan Jones and PIB with whom you'd had a longstanding arrangement to see if they - they could help with this mess that you found yourself in---Yes.
Yes. And he said words to the effect to you, 'Have you received any payments for any of the 2000 - 2001 renewals?' and you said, 'Yes, I have‑‑‑Yes.'
And he asked you if the payments were in your trust account, and you said yes, they were?---Yes.
And is it correct that Dan then said words to effect to you that if PIB takes over your insurance client base, Locke Holdings would be obliged and required to pay over those trust moneys to PIB, and you said yes, that shouldn't be a problem?---I said that the trust moneys would be paid over. I didn't say when.
Yes. But you - he did say if he was going to take over the insurance client base, Locke Holdings would be obliged to pay those premiums over to him?---Eventually. There was - it wasn't a precondition.
Yes. But you accept that that was discussed and you said yes?---Yes.
Thank you. And he says at that stage there were general discussions about a possible agreement but no deal struck then?---Correct.
And Mr Jones will give evidence that he then made a proposal where he suggested (a) you close down the Locke Holdings business as part of doing a possible deal. Do you agree he said that, that you would close down the Locke Holdings business?---Well, we would have had to have closed it down.
Yes. And do you agree that's something he mentioned?---Words to that effect, yes.
Yes. Thank you---We wouldn't try and continue in some other capacity.
Yes?---I think that's what you're getting at, yes.
And that's something he mentioned, words to that effect?---I would think so, yes.
…
HERSHOWITZ, MR: Renewals. Sorry, I'll repeat that. He then said as part of the proposal Locke Holdings would pay to PIB all insurance premiums held in the trust account which had already been received for the '01, '02 renewals?---Yes.
And then he also discussed that Locke Holdings would have to close its account and Locke Holdings would endorse all cheques - you would endorse all cheques to PIB that might be received subsequent to any deal that you concluded?---Yes. And that was done.
And that was part of the discussion?---Yeah.
And the last thing he said as part of the discussion was you'd need to send a letter to ASIC requesting cancellation of your licence?---Yes. And that was done.
I understood the plaintiff to mean that the agreement to remit the renewal premiums received by Locke Holdings to the defendant was but one of the several tasks required to be completed to facilitate the orderly handover of the business.
It was further agreed that any premiums subsequently received into the Locke Holdings business trust account or by cheque after 30 June 2001 would be endorsed in favour of and remitted to the defendant.
The plaintiff said during July 2001 he discussed with Mr Jones the payment of the premiums that had been received by Locke Holdings in respect of clients for the 2001 - 2002 year.
On 25 July 2001, a reconciliation report was prepared by the plaintiff that recorded that a total of $69,537 had been received by Locke Holdings in respect of renewal premiums that had not been remitted to the insurers with whom the insurance had been placed.
Pursuant to the terms of the agreement, such funds were to be paid to the defendant for the defendant to on-forward to the relevant insurers.
At that time, the plaintiff, seemingly unilaterally, forwarded a cheque for $20,000 to the defendant on the basis that the balance then due ($49,537) would be paid the following week. The plaintiff said that he had retained the balance of the funds received to pay office expenses, in contemplation of getting a share of commission. The sum due was adjusted the following day to a total figure of $50,458.56, after the deduction of the $20,000 remitted the previous day.
The plaintiff acknowledged that he was required to pay the money that he had received on account of premiums to the defendant, however, said there had been no agreement as to when such funds were to be paid. The plaintiff said that the defendant did not press for the funds at that time.
The plaintiff said that all of the premiums that had come in, either by cheque or bank transfer into the Locke Holdings trust account, were passed on to the defendant, save for an amount used by him to pay company expenses in the expectation of offsetting it against payments due from the defendant.
By late July 2001, the plaintiff was not in a position to then pay the balance of the money due to be transferred to the defendant. At this time, the plaintiff was desperately seeking the funds due to him from overseas to enable him to satisfy his obligations with his creditors.

Termination of the agreement

The plaintiff said that on 3 August 2001, he received a letter from the defendant expressing concern that it might be held responsible by the underwriters in respect of the outstanding monies, notwithstanding that the monies were paid to Locke Holdings (exhibit X). He said that Mr Jones then requested that he confirm that he had closed the Locke Holdings trust account and that no monies had been transacted after 26 July 2001.
The letter was in the following terms:
Dear Max
Following discussions with Ace Insurance Asia and SGIO Insurance I understand that I could be held responsible for any out-standing monies not paid to them for the 2001/2002 period – even though such monies would have been paid to you. It has been suggested that I should obtain a legal opinion regarding this.
I have been advised to obtain from you, written confirmation from Bank West (Morley Branch) that the Locke Holdings Pty Ltd Trust Account has been closed, the date the account was closed together with confirmation that no monies have been transacted in the account since the date of closure; which I understand from you was the 26^th July 2001.
Please ensure that such confirmation is faxed to me, direct from your bank, by no later than 12 noon on Monday 6^th July [sic].
Max, I understand from Justin that the out-standing monies will be paid to me by midday Tuesday 7^th July [sic]. Please attach to this payment a copy of the Locke Holdings Pty Ltd Trust Account statement from the first of July 2001 to the date of closure of the account.
Regards
Dan Jones
The plaintiff said that on 6 August 2001, in accordance with Mr Jones' request, BankWest confirmed to the defendant that the Locke Holdings account had been closed and, further, that no funds had been transacted since its closure.
The plaintiff said that on 8 August 2001, he received a letter dated 14 August 2001 (exhibit 7) from the defendant. The letter was in the following terms:
Dear Max
I refer to my letter of the 3 August 2001 and to various discussions and promises on your part to rectify the matter of the unpaid premium amounting to $50,458.56 for the renewal period 1 July 2001 to 1 July 2002. In spite of Justin [the plaintiff's son] assuring me that payment would be made in full by mid‑day today the outstanding amount remains unpaid.
Max, I therefore regret having to terminate any arrangements that previously existed between Locke Holdings Pty Ltd and Progressive Insurance Brokers.
Regards
Dan Jones
The plaintiff said that he understood the reference to 'arrangement' related to the purchase of the business.
The plaintiff responded by facsimile that day (exhibit 8) in the following terms:
Attention Mr Dan Jones
8/8/01
I spent over two hours in meeting with the Financial Director of Prestige Securities Pty Ltd, Mr. David Cole, yesterday afternoon. I am now much more aware of the problems they have encountered in having funds released by the bank.
Mr Cole now assures me that my share of funds, as evidenced by the enclosure, will be forthcoming anytime from today as he has been given the green light by the bank. He prefers to err on the conservative side and allow some little more time.
Dan, I beg of you to re‑consider terminating our arrangement. I am absolutely counting on this income stream to survive. It is the only means available to Helen and I. Without it we are destitute, I mean it.
It was quite late when we finished yesterday and I went straight home exhausted. In retrospect I should have called you then. Please forgive me for not doing so.
If you wish to meet with me I am available whenever you require.
Please do not desert me now in my hour of need.
Yours sincerely
Maxwell T Locke
Annexed to the letter was a letter from Prestige Securities Pty Ltd dated 1 June 2001 (exhibit 8B). That letter purported to confirm that the plaintiff would be likely to receive a payment in the order of $300,000 later that week, that is to say, the first week of June 2001.
Later, on 8 August 2001, the defendant wrote to the plaintiff (exhibit 9) in the following terms:
Dear Max
My letter sent to you yesterday dated the 14 August 2001 should be noted as dated the 7 August 2001.
Max, I refer to your fax today and whilst I understand your predicament I regret that there is little I can do as the matter is out of my hands.
Regards
Dan Jones
The plaintiff said that by 3 September 2001, Locke Holdings had not received the payment of the purchase price instalment in respect of the premiums of former clients who had transferred their business to the defendant. Save for the payment of $8,748.72, the defendant had not made any payment of the purchase price for the business. The plaintiff wrote to the defendant (exhibit 10) in the following terms:
Dear Dan
RE : VERBAL AGREEMENT – COMMISSION SHARE.
As you are aware we made a verbal agreement shortly after 29/6/01 whereby you acquired former clients of ours. The substance of this agreement was that we would receive 70% of fees on all renewals from 1/7/01 for one year, followed by 50% of such fees the second year and then 30% of such fees for the third and final year.
You will also be aware that the above percentages of 70% plus 50% plus 30% total 150%, being the Industry norm for payment of brokerage on the acquisition of such business. Usually this amount of 150% is paid up‑front, however, on this occasion the three year period was adopted for reasons beneficial to both parties.
At the time the agreement was made Locke Holdings Pty Ltd was expecting funds from a third party to pay outstanding renewal premiums. Unfortunately this has not yet occurred. Therefore, unless we make payment to you for some renewal premiums amounting to $50,458.56 within the next seven days, please apply our share of commissions on premiums that have been paid to you by us and some clients, onto the insurers. We estimate that at 31/8/01 our share of commission would equate the amount of premiums outstanding at the date of Agreement.
We would then expect you to commence paying our due share of commissions on a monthly basis as per the Agreement.
In the event Locke Holdings Pty Ltd is in a position to either pay or top up the outstanding premiums within seven days we will do so.
Yours faithfully
LOCKE HOLDINGS PTY LTD.
The plaintiff said that the term 'fees' referred to the total fees received by the business in respect of commissions, fees and brokerage.
The plaintiff said he had requested Mr Jones to set off the money due to him against the monies that Mr Jones was requiring from the balance of the trust funds. He said that once the premiums amount was deducted, he would have then started to receive the purchase price payable under the agreement. The plaintiff said that at that time, the amount of the purchase price payable to the plaintiff would have been sufficient to discharge the balance remaining in respect of the 2001 ‑ 2002 renewals.
The plaintiff said that on 13 September 2001, he received a letter from the defendant's solicitors, Messrs Griffiths & Godecke (exhibit 11) advising that the agreement with the defendant had been terminated. The ground of termination was alleged to be his failure to pay the balance of the 2001 ‑ 2002 renewal premiums received by Locke Holdings. The defendant repudiated any obligation to pay the purchase price to the plaintiff.
The plaintiff said that he was then unable to do anything about the defendant's refusal to pay the purchase price. He was declared bankrupt on 20 August 2001 and an administrator was appointed to Locke Holdings. The plaintiff's wife was declared bankrupt on 9 October 2001.
Locke Holdings was subsequently wound up by order of the Supreme Court of Western Australia on 24 July 2002, with Ms Jennifer Low appointed as the liquidator.

Assignment

The plaintiff said when he was released from his bankruptcy in September 2004, he sought an assignment of Locke Holdings' right to recover the unpaid purchase price of the business from the defendant. Thereafter, a deed of assignment was concluded between the liquidator and the plaintiff dated 14 November 2005 whereby, pursuant to an approval to the assignment granted by the Supreme Court of Western Australia on 9 June 2005, the plaintiff acquired from the liquidator all causes of action that the company had against the defendant in respect of the unpaid purchase price (exhibit 13). The assignment was given in consideration of certain payments being made and a minimum agreed portion of any funds recovered being available to creditors of Locke Holdings.

Jennifer Low

Ms Low was appointed as the liquidator of Locke Holdings on 24 July 2002 (exhibit 12).
Ms Low said that when she had first been appointed as liquidator, the plaintiff described the conditions of sale and provided her with background information in relation to the claim against the defendant. In accordance with the advice she had then received, she wrote to the defendant seeking payment of the purchase price by letter dated 20 August 2002 (exhibit 14A). Ms Low sought details of the agreement, copies of any documentation, the names of the clients of the Locke Holdings business that were acquired and the value of the premiums received since the acquisition.
On 26 September 2002, following a reminder letter, the defendant's solicitors wrote to Ms Low (exhibit 15) in the following terms:
Our client agreed with Mr Locke that he would receive a percentage of fees if he arranged for all of the trust moneys relating to clients which our client would thereafter service to be paid over to our client. Mr Locke became entitled to no such remuneration because he failed to arrange for all of the trust moneys to be paid over to our client. This brought matters to an end.
Our client considers the matter to have been finalised and he is not prepared to accept the cost for inconvenience of engaging in further correspondence in relation thereto.
Yours faithfully
GRIFFITHS & GODECKE
The defendant's solicitors refused to discuss the matter further. Ms Low said that as there were no funds available to her to investigate the matter further, she thereafter took no further action.
Ms Low said that in 2004 she negotiated an assignment of the Locke Holdings rights against the defendant to recover the purchase price (see exhibits D, E, F, G, H and J). The assignment of the chose in action was later approved by the Supreme Court of Western Australia. Pursuant to the terms of the assignment, the plaintiff is to pay to the creditors of Locke Holdings a fixed sum, plus, an agreed percentage of such monies that the plaintiff recovers in an action issued against the defendant to recover the purchase price (exhibit 13).

Defendant's case

Mr Daniel Jones

Purchase of the Locke Holdings business and terms

Mr Daniel Jones gave evidence for the defendant.
Mr Jones said that on 27 June 2001, a business associate advised him that Locke Holdings had lost its accreditation with SGIO and was in financial trouble. He was shocked by the news and concerned about its possible impact on the defendant. He said that at that time, Locke Holdings was providing, by way of referral, over 90% of the defendant's business.
Mr Jones said that he telephoned the plaintiff and asked him to come to discuss the 2001 renewals. He did not mention to Mr Locke what he had heard about Locke Holdings' position and his concerns in that regard.
Mr Jones said that the plaintiff came and met with him and his partner, and fellow director, Mr Medling. He said that the plaintiff asked him if he could assist Locke Holdings with the workers' compensation renewals.
Mr Jones said that he then told the plaintiff that he was aware that he had lost his accreditation and that he had heard that the trust account was in default. Mr Jones said that the plaintiff acknowledged his dire position and that he was in default with SGIO. The plaintiff said he was awaiting funds from overseas to attend to the matter.
Mr Jones said that the plaintiff was very concerned about his personal position and was also fearful of possible criminal consequences.
Mr Jones said that he asked the plaintiff if he had received any payments for the 2001 - 2002 renewals. The plaintiff told him that he had received some payments and that they were in his trust account.
Mr Jones said that he told the plaintiff that the only way to save the business was to write to his clients, ASIC and insurers and advise them that he was retiring and that the business was being transferred to the defendant.
Mr Jones said he told the plaintiff that Locke Holdings would need to transfer the funds in its trust account, in respect of the 2001 - 2002 renewals, to be processed to insurers to the defendant, close the Locke Holdings accounts and endorse any cheques received in favour of the defendant.
Mr Jones said that he told the plaintiff that he would discuss it with Mr Medling and speak to him the following day and 'let him know what [he could] do in regards to remuneration' (ts 224).
In cross-examination, Mr Jones acknowledged that he had said to the plaintiff, words to the effect that 'the only way to save the business is for me to take over the business – for me to buy it' and that thereafter, he discussed and agreed with the plaintiff as to what was required to enable that to happen.
Mr Jones said that later that day he went to the plaintiff's office to discuss the terms of purchase of the business. He said that he reiterated the conditions concerning the writing to the clients and ASIC, closing the office, paying to the defendant the money held in the Locke Holdings trust account and then closing that account.

Mr Jones said upon those conditions, he offered to buy the business on the basis of 70% of the broker's fees earned in respect of those clients who transferred to the defendant in the first year, 50% in the second year, 30% in the third year and then nothing after. He said that in return, he would get the Locke Holdings client base.
Mr Jones said that later that day, the Locke Holdings client base, comprising computer records and all client files, were handed to the defendant. Thereafter, Locke Holdings staff assisted him with the transfer of the business.
A letter was sent to all Locke Holdings clients advising of the plaintiff's retirement and that the defendant had taken over the business. All clients were requested by the plaintiff to contact the defendant in respect of their future insurance needs.
Mr Jones said that the remittance advices (exhibits 5A, B and C) were generated by the defendant to identify those clients who had paid premiums for the 2001 ‑ 2002 period. The advices were sent to Locke Holdings together with the cheque for 70% of broker's fee that had then been received.
Mr Jones said that whilst the fee was described as commission, such figure in fact represented 70% of the broker's fees received from the former Locke Holdings clients.
Mr Jones said that until he took over the business in July 2001, he was unaware of the amount of broker's fees that Locke Holdings had charged its clients.
Mr Jones said he was unaware of any industry standard or norm, whereby a percentage of the gross income of a business was used as a measure for valuing an insurance broking business. He further denied that such percentage formula or industry norm was discussed by the plaintiff on the previous day. Mr Jones said the percentage specified by him to the plaintiff was a formula that 'came to [him] overnight' to provide some remuneration to the plaintiff.
He was however, unable to provide any explanation as to how the total of the percentages proposed by him equated to 1.5 times or 150% of the fees. It was seemingly a coincidence that it added up to the same percentage as the industry norm to which the plaintiff said he had referred the previous day.
Mr Jones was adamant that the only income figure being discussed was broker's fees. He said that there was no discussion of commissions or gross profits.
Mr Jones further conceded however, albeit seemingly reluctantly, that he had valued the defendant's business for sale in 2010 using a percentage of gross income for the previous year that included both commissions and fees. Mr Jones said that in 2010 the percentage used was two hundred percent or two times the gross income.
Mr Jones acknowledged that the percentage of the broker's fees earned that were to be paid to the plaintiff would be calculated at the rate that the defendant elected to charge the former Locke Holdings clients during each of the three successive years. He said that he did not know how much the plaintiff would be paid by way of purchase price at the time the defendant agreed to purchase the business.
Mr Jones accepted the correctness of the proposition that if the purchase price was to be fixed by reference to those broker's fees set by the defendant for the next three years and the defendant elected not to levy any broker's fee and simply rely on the insurer's commission income, the purchase price for the business would be nil.

Termination of the agreement

Mr Jones said that payment to the defendant of the money received by Locke Holdings in respect of the 2001 - 2002 renewals was a condition of the sale. He accepted however, that no date for payment to be made was specified or agreed. Mr Jones acknowledged in cross-examination that he did not ask the plaintiff to pay the money to the defendant immediately. Mr Jones further acknowledged that the obligation to pay a premium to the insurer was on the broker who had placed the insurance.
Mr Jones said that the plaintiff said that he was waiting for the funds that he had invested overseas. Mr Jones said that he took the plaintiff at his word. He said that he was 'assured many times they were coming back the next day and the next day and the next day' (ts 297).
It is implicit from such evidence that the funds were then not in the Locke Holdings trust account and were going to be repaid soon.
Mr Jones said that the plaintiff was to pass over any premiums that he had received for the 2001 - 2002 period in the Locke Holdings trust account to the defendant (ts 298).
Mr Jones said that on 25 July 2001, the plaintiff handed him a cheque for $20,000. The plaintiff told him that he was still waiting for the money from overseas to pay the balance outstanding.
Mr Jones said that he put the $20,000 into a suspense account and then rang Ace Insurance and SGIO to ascertain what to do with the money. In due course he paid the whole of the sum to Ace Insurance when that insurer threatened to seek payment of the premiums from the former clients of Locke Holdings.
Mr Jones wrote to the plaintiff on 7 August 2001 (dated 14 August 2001). He said that when he received the plaintiff's letter on 8 August 2001 he responded that the matter was out of his hands. Mr Jones was unable to explain why his letter was dated 14 August 2001 or why he had said that the matter was out of [his] hands.
Mr Jones said that he first sought legal advice on 3 September 2001 following his receipt of the plaintiff's letter (exhibit 10). Mr Jones said that upon his solicitors responding to the plaintiff, he heard nothing further until he was contacted by the liquidator approximately two years later.
Mr Jones said that approximately one third of Locke Holdings' former clients transferred their business to the defendant.
Save for the payment to the plaintiff of $8,748.72 during the period 5 July – 6 August 2001(exhibits 5A, B and C), representing 70% of the fees in respect of the cheques that the plaintiff had endorsed over to the defendant in accordance with the agreement, the defendant made no further payment relating to the acquisition of the business.
Mr Jones said that as the plaintiff had cancelled his broking licence when the business was sold to the defendant and was insolvent, the defendant believed that it was entitled to retain the business and not pay the purchase price.
Mr Jones said he was unwilling to continue with the purchase of the business after the plaintiff had not forwarded to the defendant the balance of the funds that Locke Holdings had received in respect of the 2001 ‑ 2002 premiums. He said that his conscience would not allow for him to continue to purchase the business as the plaintiff had taken the money from the trust account.
Such approach does not sit well with the plaintiff's proposal that his entitlement to payment of the purchase price would be offset against the balance outstanding – particularly when the defendant retained the business and continued to derive income.
It was the plaintiff's evidence that the commissions and fees received by the defendant from the former Locke Holdings clients by 31 August 2001, would have been sufficient to clear the outstanding amount.
Mr Jones acknowledged that the defendant did not receive any demand or request from any insurers, nor had it been sued by any insurers seeking recovery of premiums that had previously been paid to Locke Holdings for the 2001 - 2002 renewals and not remitted to the defendant or the insurers.

Damages claimed

When cross-examined about the damages the defendant sought in its counterclaim, Mr Jones said that the damage claimed, as likely to be suffered, was those premiums that had been acknowledged as received by Locke Holdings in the reconciliation that were not remitted to the defendant, namely, the sum of $50,458.56.
Mr Jones said that the defendant had paid some $29,000 to insurers in respect of those former Locke Holdings clients who advised the defendant that they had paid the renewal premiums to Locke Holdings and such premiums had not been passed on to the insurers. He said the defendant paid the premium funds to retain the business of those former clients. When pressed in cross‑examination to point to any documents evidencing such payments Mr Jones was unable to do so.

Failure to call Mr Medling

Mr Jones was cross-examined about the availability of Mr Medling to give evidence for the defence. Mr Jones said that Mr Medling had been contacted in relation to providing a statement and giving evidence for the defendant. Mr Jones said that he decided not to call Mr Medling as he was touring Australia with his wife. He said that Mr Medling's wife was seriously ill.

Prejudice suffered by delay

Mr Jones was cross-examined by counsel for the plaintiff in relation to the prejudice allegedly suffered by the defendant by reason of the plaintiff's delay in prosecuting the action. This matter was then a live issue on the pleadings.
Mr Jones' evidence on this issue was instructive as to the defendant's bona fides in dealing with the plaintiff's claim:
KYLE, MR Could you tell us what the prejudice suffered by Lepple Pty Ltd was---Well, up till about 2003 Progressive had a filing system of manual files. And in 2003/4 we changed to electronic filing. And anything that was not related to our clients such as those clients that once were Locke's but were - did not come over to Progressive, they did not get scanned into the electronic database. And so they were simply shredded and destroyed. Only records destroyed were those that did not come to Progressive on 1 July. And of course, we couldn't supply that information.
So how did that prejudice you---Can you define 'prejudice'?
BIRMINGHAM DCJ: Well, do you really need prejudice to be defined to you, Mr Jones---Are we talking in a financial sense or a - or---
I think the question was asked of you as to whether you were prejudiced by it---Mm hmm.
That's an allegation you have made and that's what is being sought---Mm hmm.
BIRMINGHAM DCJ: In the sense that you mean it in the defence I think would be the - the - what it meant.
And could I have the question again, please?
KYLE, MR: I'm just reading the exact terms of the defence in this respect, your Honour.
BIRMINGHAM DCJ: So do you say that anything that was not related to current accounts were not scanned and you then------Correct. Any - any client that did not come across to Progressive because they were SGIO's clients, those records were shredded. No other client's records were shredded. They were put onto the electronic database, for which Mr Kyle has a copy.
KYLE, MR: In the pleadings filed on your - your behalf, and in particular the further and better particulars of your defence, your company was asked in respect to the allegation of delay in what way the defendant acted to its prejudice. And the answer to that was: The act of not keeping all records and documents pertaining to the contract between the company and the defendant, and the act of not keeping records of all the brokers' fees earned by the defendant for the years 2002, 2003 and 2004. Then you go on: The payment by the defendant of the trust premiums which were due and payable by the plaintiff. I presume that's supposed to mean the non-payment of those trust premiums, but that's what's said. And then you go on: The defendant is unable to state precisely the dates on which the defendant acted, but said it's acted its prejudice on or before a date that the proceedings were instituted.
KYLE, MR: And you go on: In the circumstances, the defendant did not have records readily available of brokers' fees, by whom they were paid and when they paid which related to those of its clients who were formerly clients of Locke Holdings. So that seems to me to, in - in a rather longer way, say exactly what you said a moment ago in answer to my question. That was the prejudice you suffered, was it---?---Mm hmm.
KYLE, MR: Okay. Now, the statement of claim now, which your legal advisers have agreed to---
BIRMINGHAM DCJ: Sorry; the statement of claim or defence?
KYLE, MR: Yes. Paragraph 5 of the statement of claim.
BIRMINGHAM DCJ: Yes.
KYLE, MR: Which lists the amount of commissions and fees received during those three years in respect of insurance policies arranged by the defendant for Locke Holdings' clients - former clients, states what you say were the fees and commissions earned for that business, don't they---Mm hmm.
Right---On - on electronic databases, yes.
Yes. So I ask again, what prejudice have you suffered---I'm unsure how to answer the question. I don't understand it.
Well, you say you destroyed the records which would have showed what fees and commissions were earned on the business of insurance policies arranged by you, if I could put it in that general sense - or renewed by Progressive Insurance Brokers during the years 2002, 2003 and 2004. Now, you've agreed------Mm hmm.
- - - what the figures are. And in fact, those figures were based entirely upon your records. So why do you say you've suffered a prejudice---I can't answer.
No---Mm hmm.
When counsel for the plaintiff then questioned Mr Jones as to his and the defendant's state of awareness of the assignment of the chose in action to the plaintiff, counsel for the defendant, Mr Hershowitz, interrupted the cross‑examination to state that the defendant abandoned its pleaded defence of laches.
I was left with the impression that the concession of a seemingly unmeritorious plea was done at that moment to deflect further damaging examination of Mr Jones in relation to the defendant's denial of knowledge of the assignment.
His evidence continued (ts 323):
KYLE, MR: I put it to you that there was no prejudice. You knew perfectly well from the fact that your solicitors were contacted by the liquidator of Locke Holdings that she wanted to investigate the claim - potential claim against Lepple Pty Ltd, and you knew full well that Mr Locke wanted to pursue the matter when he got out of his bankruptcy, didn't you?---Incorrect.
Well ‑ ‑ ‑?‑‑‑While he was still in his bankruptcy, you mean?
No, no. No, once he got out of it. You knew that, didn't you---Well, I knew that ‑ ‑ ‑
Yes?‑‑‑ ‑ ‑ ‑ after he got out of his bankruptcy, he approached the liquidator to buy his rights to sue me.
And they reached an agreement?---Yes. It's been presented.
Yes. Yes. And you know, don't you, just of your own general knowledge, that there was nothing Mr Locke could do about it from the moment he was made bankrupt until he was released from bankruptcy? You would know that presumably?---No.
I was left with the impression that Mr Jones well understood the line of examination and was being evasive.
Mr Jones subsequently acknowledged that he was aware that the liquidator had assigned to the plaintiff Locke Holdings' chose in action to recover the purchase price and that the plaintiff intended to take action against the defendant (ts 325).

Findings on credibility and reliability of witnesses

The plaintiff

The plaintiff was 80 years old at the time of giving evidence. He was cross‑examined at length. I am satisfied that he gave his evidence carefully and did his best to recall events that occurred over 10 years earlier at a time when he was then in very difficult stressful personal circumstances that resulted in both his and his wife's bankruptcy.
Given that there were aspects of the plaintiff's prior conduct at the time of the failure of the business that were unsatisfactory and, at times, seemingly involved serious impropriety in the use of insurer's funds, I have carefully scrutinised his evidence before accepting the same.
Counsel for the defendant invited me to draw an adverse inference from the failure of the plaintiff to call his son to give evidence in the case. Such invitation was seemingly premised on the plaintiff's evidence that after he had discussed sale with Mr Jones he spoke to his son and explained to him that he had agreed to sell the business, although the specific terms were not discussed. The plaintiff's son was present in court throughout the trial and available to give evidence if required. I am satisfied that no inference should be drawn. The evidence of what the plaintiff told his son, as to what he believed were the terms of the agreement reached, was not such as to be an exception to hearsay and would not have been admissible.
Whilst the terms used by the plaintiff in the correspondence and subsequent court documents are at times inconsistent, I am satisfied that the plaintiff's evidence on the critical issues accords with the probabilities.
I consider that the plaintiff was generally honest and forthright and that he gave a truthful account of his dealing with the defendant in 2001 and I accept his evidence.
I prefer the plaintiff's evidence to that of Mr Jones where they conflict on any material point.

Ms Low

Ms Low impressed as a frank and forthright witness whose evidence was uncontroversial. In light of the subsequent admissions by Mr Jones, her attendance at trial was seemingly unnecessary.

Mr Jones

I did not find Mr Jones a compelling or reliable witness. In several instances I consider that he was deliberately evasive. His request for counsel to define words that had been used in the defendant's pleading, such 'prejudice', is an example of such conduct.
I did not find Mr Jones' explanation for the defendant not calling Mr Medling as a witness compelling and place little weight on it.
Given the conflict between the evidence of Mr Locke and that of Mr Jones as to the making of the agreement and in particular, the words spoken, that the defendant did not seek to have Mr Medling give evidence by way of video-link – a practice very commonly used in this court – or by way of a statement tendered pursuant to s 79C of the Evidence Act 1906 (WA) is surprising and required some explanation from the defendant's solicitor or counsel.
Mr Medling was the only other witness who was present when the critical terms were discussed and the representation attributed to the plaintiff allegedly made. In such circumstances, in the absence of a satisfactory explanation being forthcoming from the defendant's solicitor or counsel, I draw an inference that the evidence of Mr Medling would not have assisted the defendant or supported the evidence of Mr Jones on the critical issues in dispute.
Furthermore, the defendant accepted part payment of $20,000 in respect of the money said to be due on 25 July 2001. Those funds were applied to discharge obligations with the insurers under the outstanding policies. Whilst such conduct is not admissible to assist in the construction of the agreement, it is relevant to my assessment of the credibility of Mr Jones. I consider that his conduct in accepting such sum and being prepared to wait for the balance of the funds to be inconsistent with his professed claim that the payment of such funds was an essential term of the sale agreement. I do not accept his evidence in that regard ‑ his actions at the time were inconsistent with what he now seeks to assert as the true position.
I prefer the evidence of the plaintiff to that of Mr Jones where their evidence conflicts on any issue in this trial.

Findings

Assignment

It is convenient to deal with the issue of the validity of the assignment to the plaintiff of Locke Holdings' chose in action against the defendant to recover the purchase price at the outset.
It is accepted that the plaintiff, as an assignee, takes the assignment of the chose in action from Locke Holdings subject to all equities ‑ including the rights of the defendant: Ghirardi v Allregal Corporation Pty Ltd [2001] WASCA 366 [15] (Anderson J with Steytler and Templeman JJ agreeing). To the extent that the defendant seeks relief against Locke Holdings in respect of the pleaded breach of s 52 of the TPA, the plaintiff is also bound.
It is the plaintiff's case that the defendant knew that the plaintiff intended to make the claim by virtue of a letter from the liquidator of Locke Holdings Pty Ltd to the defendant dated 20 August 2002 and notice of an application by the liquidator to the Supreme Court of Western Australia for approval of the assignment of the cause of action against the defendant dated 26 May 2005.

Something more is required and it is necessary to consider the circumstances at the time the representation was made. Insofar as the representation or promise to pay is in respect of a future matter, it is not misleading and deceptive merely because it does not occur or the promise is unfulfilled. See: Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82, 88.
In determining whether a person had reasonable grounds for expressing an opinion or making a prediction as to a future matter, is necessary to judge the matter as at the date of the representation. Whilst regard to later events which in fact occurred is of some relevance to throw light upon the overall probabilities, as to whether the plaintiff had reasonable grounds to make the future representation, it is important to guard against hindsight illusion: See: City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94 [83] (Mason P with whom Beazley JA agreed [105]).
It is necessary to consider the representation pleaded by the defendant and the consequences flowing from that.
Notwithstanding the findings that I have made as to the representations made to Mr Jones by the plaintiff, the defendant's pleaded case is not without its difficulties.
The defendant's case in respect of the representation pleaded in par 3(a) goes to an existing fact, namely, that the trust account of the company was then in credit to the extent of the trust premiums received from its clients for the 2001 ‑ 2002 period; that is to say, the funds were in the Locke Holdings trust account.
The defendant's case in respect of the representation pleaded in paragraph 13(b) relates to a future matter, namely, that the company would, upon conclusion of the agreement; ‘forthwith' pay to the defendant the renewal premiums for the 2001 ‑ 2002 year that had been received.
Properly construed, the plaintiff, on behalf of Locke Holdings promised the defendant that it would pay the renewal premiums 'immediately', 'at once' or 'without delay' (see: Shorter Oxford English Dictionary) upon completion of an agreement; and further, that at that time, the plaintiff impliedly represented that he then had reasonable grounds for making such representation.
At the trial, the focus of the evidence was directed to whether the representations were made and, if so, whether the defendant relied thereon and suffered damage. Whilst the second limb of the representation alleged goes to a future matter, namely, the promise to pay, no facts were pleaded to enliven the operation of s 51A of the TPA.
The question as to whether there is a necessity to plead reliance upon s 51A of the TPA has been the subject of much debate and is seemingly not settled: see O'Neill v Medical Benefits Fund of Australia Ltd [2002] FCAFC 188, however, the consensus suggests that this is an obligation to indicate an intention to do so.
Notwithstanding the deficiency in the pleaded case, the parties seemingly have allowed the matter to proceed on the assumed basis that the representation was a live issue for determination. As such, I will address the matter on the materials before me.
The effect of s 51A(2) of the TPA is that a representor who fails to adduce evidence to support a defence of reasonable grounds is deemed to have made a misleading representation; See: McGrath & Honey v Australian Naturalcare Products Pty Ltd[2002] FCAFC 2 [72] (Stone J).
To the extent that the defendant seemingly relies on s 51A of the TPA, an evidentiary burden is cast on the plaintiff to show that, at the time of making the representation of his intention to pay the renewal premiums received to the defendant, reasonable grounds then existed for making such statement.

The evidence

Whilst the defendant's pleaded case was generally denied by the plaintiff, in his reply and defence to counterclaim, the plaintiff acknowledged that he had received premiums in respect of the 2001 ‑ 2002 renewals into the Locke Holdings trust account and that such account was in default.
By his reply, the plaintiff admits that he was unable to pay some of the premiums. It is not apparent however, when the default in the trust account occurred or what the true status of the trust account was as at 29 June 2001.
On 25 July 2001 the plaintiff forwarded to the defendant $20,000 in respect of premiums that had been received. The covering letter (exhibit 6) was relevantly in the following terms:
To Dan Jones
Subject: Final Payments
Enclosed are three spreadsheets as discussed earlier today. The small list totalling $2152.45 refers to after July 1^st. The large one totals 25,962.19 being annual, half yearly and quarterly payments.
The total of these is $28,114.64. Add to this amount the schedules already forwarded taken from our bank statements being $41,422.47 and the grand total is $69,537.11. When the cheque of $20,000.00 paid today is deducted the remaining amount to be passed on next Friday is $49,537.11
Let us know if you have any queries.
Regards
Max Locke
Unfortunately, the schedules as to payment received referred to in exhibit 6 were not produced at trial by either party. Further, the bank statements to which reference was made were not produced. The evidence as to how much was paid and when is unclear.
On 26 July 2001, Ms Mackenzie on behalf of the plaintiff and Locke Holdings wrote to Mr Jones acknowledging that three additional payments received had been omitted from the reconciliation statements and increased the amount due to be paid to $50,458.56 (exhibit U).
On 31 July 2001, the plaintiff wrote to Mr Jones and advised that he was unable to obtain the necessary ‘financial comfort' required to enable the money owing to be paid immediately.
On 1 August 2001, the plaintiff again wrote to Mr Jones (exhibit W) and advised that he would be in a position to know by 3.00 pm that day as to whether funds would be forthcoming.
By letter dated 3 August 2001, the defendant wrote to the plaintiff requesting confirmation that the plaintiff had closed the Locke Holdings trust account and confirmed that all outstanding moneys were to be paid by midday on 7 August 2001(exhibit X).
I accept and find that the plaintiff represented to the defendant that Locke Holdings had received premiums in respect of the 2001 - 2002 year renewals and that upon the sale of the business to the defendant, such funds would be remitted to the defendant.
It is common ground that save for the sum of $20,000 paid on 25 July 2001, the premium renewal received were not remitted to the defendant.
It is not apparent when the money was removed from the trust account by the plaintiff. Seemingly, as the plaintiff acknowledged, some funds were used prior to 29 June 2001, to pay living expenses and various creditors to stave off his pending bankruptcy and Locke Holdings' insolvency. These payments, together with the imprudent investment of funds resulted in the trust account being in default.
It is apparent from the letter to the plaintiff from SGIO Insurance dated 4 May 2001, referring to a cheque from Locke Holdings to SGIO in the sum of $83,217.81 having been dishonoured and the plaintiff's pending loss of accreditation with effect from 8 June 2001 (exhibit A), that the Locke Holding trust account was in default by early May 2001.
The contents of exhibit L dated 11 June 2001 and exhibit Q dated 10 July 2001 further support the reasonable inference that the Locke Holding trust account was in significant default as at 29 June 2001.
That the account remained in default is supported by the plaintiff's facsimile to the defendant on 12 July 2001 (exhibit R), wherein, the plaintiff requested the defendant to pay the wages of the Locke Holdings staff working on the handover of files. The plaintiff further requested an advance on renewal fees to be paid to enable him to 'meet company accounts, legal fees and some living expenses' at that time.
Whilst it is acknowledged by the plaintiff that the trust account was deficient to the extent of $50,458.00 in respect of the renewal premiums received by Locke Holdings, as detailed in the reconciliation, the evidence tendered does not permit a finding as to when those funds were received by Locke Holdings and disbursed by the plaintiff other than to the insurers.
It is not apparent as to whether the amounts shown in exhibit 6 and exhibit U were in the trust account at the time the statement was made by the plaintiff or, received later by Locke Holdings before the trust account was closed on 26 July 2001.
I am unable to make any finding on the evidence in relation to this matter.
On the basis of the evidence presented, I find that it is more probable that the funds were taken from the trust account prior to 29 June 2001, insofar, the trust account was then in default as evidenced by exhibit A and the defendant had the general carriage of the business from 1 July 2001.
By his statement to Mr Jones and Mr Meddling on 27 June 2001 at Nollamara, the plaintiff inferred that he had then received premiums for the 2001 ‑ 2002 renewals into the Locke Holdings' trust account. At the same time, he told them that the trust account was in default and that he was awaiting funds from overseas to settle with insurers.
I find that, properly understood, the plaintiff said that he had received the funds and had then used them, but intended to use funds expected from overseas to pay the renewal premiums to the defendant.
It follows from the fact that Mr Jones was then aware that Locke Holdings' trust account was in default and that the plaintiff was awaiting funds from overseas to remedy that situation and that the funds required to pay the renewals received were not in the trust account as at 29 June 2001.
When assessing the representation it is necessary to look at the circumstances at the time it was made.
Reliance on the conduct complained of is essential: See: Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No1) (1998) 39 FCR 546.
I am satisfied on the balance of probabilities that as at 29 June 2001, the defendant was aware of the then default in the Locke Holdings trust account and accepted that the funds would be forthcoming to remedy the situation as promised by the plaintiff time and time again.
It follows that to the extent that the representation as to the funds being in the trust account was made and was false, I find that the defendant did not rely thereon and was not misled insofar as the true position was then known by the defendant.
In the circumstances, the false representation by the plaintiff as to the then current status of the Locke Holdings trust account did not cause the defendant to suffer any loss.
I am fortified in that view by the defendant's conduct immediately after 1 July 2001. The defendant's conduct in continuing to take over the business and commence making payment of the purchase price is inconsistent with a then held belief that the funds were in the trust account and would be paid immediately.
I am satisfied that the defendant did not rely on the representation that the funds were in the trust account insofar as it then knew that the account was in default – a key factor that influenced the discussion relating to the purchase of the business.
The second limb of the representation in relation to the promise to pay needs to be considered in the context of the known circumstances at that time. The implied representation that the funds would be paid by the plaintiff at a future time calls for different consideration. Absent reasonable grounds for making such representation it is deemed to be false by the operation of s 51A of the TPA.
A promise to do something in the future, without stipulation as to time, could not be false unless it was established that at the time of making the statement the plaintiff did not then reasonably believe that he would fulfil that promise within a reasonable time. What is reasonable will necessarily depend on the circumstances in each case.
The pleaded case is that the funds would be paid forthwith. Having regard to the then prevailing circumstances, I am satisfied the term 'forthwith' was understood by the parties to mean ‘without delay', but lacked any notion of immediacy. In this case it was understood by the parties that it would occur as one of the matters to be attended to facilitate the handover.
In my view, at its highest, the plaintiff's representation as to his intention to pay to the defendant the renewal premiums received was an expression of hope that money would be forthcoming to enable him to do so.
I am satisfied that the plaintiff intended to pay the outstanding money as promised on 29 June 2001, however, I find that at the time of making the representation, there were no reasonable grounds for doing so.
The letter relied on by the plaintiff from his business associate, Mr Ian Scott of Prestige Securities, was dated 1 June 2001 (exhibit 8B) and provided no comfort to him. The plaintiff's promised entitlement from an overseas investment of $300,000 had been overdue since early June 2001. At the time of making the representation, the time for payment had long since passed and the promises relied on by the plaintiff remained unfulfilled by Prestige.
I find that the plaintiff did not have a reasonable basis for making the representation as at 29 June 2001 and accordingly, pursuant to s 51A of the TPA, it is deemed to be false.

Damages

Damages are the gist of a cause of action under s 52 of the TPA. See: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, 525. There must be demonstrable loss flowing from the conduct complained of: Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217.
The question is not how much better off the defendant would have been if the statement made by the plaintiff had been true, but rather how much worse off it is by reason of having taken the steps which it did in reliance on the statements: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1.
In the light of my finding that the plaintiff made the representation as the payment of the amount received in renewal premiums to the defendant when there was no reasonable basis for him to do so, it is necessary to consider what, if any, damage the defendant suffered as a result.
The defendant says that save for the representation it would not have purchased the business. I do not accept Mr Jones' evidence on that point. The fact that the defendant retained the business and took no effective steps to rescind the agreement, save for the refusal to pay the purchase price, is wholly inconsistent with such contention. Indeed, it is not a matter that found it way into the defendants pleaded case at any time.
As noted above, pursuant to s 26 and s 27 of the Act it was the plaintiff and Locke Holdings obligation to hold the renewal premium funds in the trust account to the credit of the insurer with whom the risk had been accepted and to ensure payment of the premium to the insurer when the policy is effected in accordance with the commercial terms then in place.
At all material times, the legal liability to pay the premiums to the insurers was that of Locke Holdings. The defendant did not assume that liability upon the purchase of the business.
Mr Jones said that following the transfer of the Locke Holdings business to the defendant, the insurers looked to the plaintiff and Locke Holdings for payment.
Those insurers to whom Locke Holdings had defaulted were aware that it was Locke Holdings and not the defendant that had received the funds. The insurers, quite properly, did not seek recovery from the defendant.
The defendant was only required to pay the plaintiff for such of the business of the former Locke Holding clients that the defendant acquired. To the extent that the goodwill of the business purchased by the defendant may have been damaged by Locke Holdings' loss of funds from its former clients, such loss would be reflected in the reduction in the number of former Locke Holdings clients being willing to transfer their business to the defendant.
Given that the defendant was only obliged to pay to the plaintiff the purchase price, calculated on the percentage of income generated by those former clients who did transfer their business to the defendant, any loss in good will was compensated by the reduced purchase price. To the extent that the value of the business purchased was reduced, the purchase price to be paid was reduced. The defendant was only required to pay for such goodwill as reflected in the former client's business that transferred to the defendant.
It follows that the defendant suffered no damage from the failure of the plaintiff to remit the funds and as such, the plaintiff's representation did not cause the defendant to suffer loss.
The defendant seeks relief by way of rescission of the agreement, pursuant to s 87 of the TPA or alternatively damages.
Importantly, the defendant retained all of the files and other business and continued to operate the plaintiff's business as its own and continued to receive income derived thereafter. Notwithstanding attempts by the plaintiff to engage the defendant in discussion concerning the purported termination, or more properly described the defendant's repudiation of the agreement, the defendant did not entertain the possibility of making restitution or taking any steps to return the property that it had acquired under the agreement.
In the absence of restitution being made, by its conduct in retaining and continuing to take the benefit of the business purchased, the defendant affirmed the agreement.
I find that the contract was affirmed by the defendant by the acceptance of the $20,000 paid in part payment of the money being promised from the Locke Holdings trust account and the retention of the business assets and income thereafter, after the breach was known by the defendant.
Given that restitution after this period of time is no longer possible, the defendant, having on-sold the business in 2010, the defendant's remedy for breach of s 52 of the TPA must be confined to damages.
Whilst Mr Jones said that the defendant was required to pay approximately $29,000 to insurers in respect of premiums received by Locke holdings and not remitted, such claim was not pleaded by the defendant. I am not satisfied on Mr Jones' evidence that such sum was paid in any event. I am in no doubt that had Mr Jones been required to pay funds in respect of the trust premiums to insurers on behalf of the plaintiff, such a matter would have found its way into the defendant's defence and counterclaim.
Further, if the plaintiff had paid to the defendant the balance of the funds that had been received by Locke Holdings, namely, the agreed sum of $50,458.56, the defendant would have been charged with the obligation to pay those funds to the insurers.
In the circumstances I find that that defendant did not suffer any loss.
No claim for a breach of contract is pleaded by the defendant. The breach of the agreement by the non-payment of the balance of renewal premiums received would entitle the defendant to an award of damages. In the circumstances, where the defendant has not suffered any demonstrated loss by reason of breach, it would only be entitled to a nominal award in the order of $100.
In the absence of any pleaded claim for damages for breach I am not prepared to make such finding. It follows that the defendant's counterclaim must be dismissed.

Observations

Given that Mr Jones acknowledged in his evidence that the defendant had been served with notice of the application to the Supreme Court of Western Australia for the approval of the assignment to the plaintiff and, further, its solicitors had received due notice of the assignment – the challenge to the validity of the assignment of the chose in action to the plaintiff was unmeritorious – a point that should have been recognised and acknowledged by the defendant's solicitor and counsel prior to the trial. This failure resulted in Ms Low proving the liquidation and the assignment and unnecessarily added to the costs of this trial. Similarly, the merits of the pleaded equitable defences of laches and unclean hands, that were later abandoned by the defendant, should have been more carefully considered prior to trial and the trial issues confined to matters truly in dispute.

Practitioners have a professional duty to take all reasonable steps to confine the case to identified issues which are genuinely in dispute (see: Legal Profession Conduct Rules 2010 r 36(1)(a) and (d).)

Orders Proposed

1.Judgment for the plaintiff in the sum of $440,376.74.
2.The defendant's counterclaim is dismissed.

Year	Commissions	Fees	Total
2002	$110,000	$118,000	$228,000
2003	$114,000	$48,000	$162,000
2004	$107,000	$42,000	$149,000