Mailmail v Atar
[2018] VCC 849
•16 July 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
EXPEDITED CASES LIST
Case No. CI-16-00515
| GULTEKIN MAILMAIL | Plaintiff |
| v | |
| ASHOUP ATAR | First Defendant |
| and | |
| EL PHARAOHS INSTITUTE OF TRAINING PTY LTD | Second Defendant |
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JUDGE: | HER HONOUR JUDGE A M RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14, 15, 16, 17 & 30 May 2018 | |
DATE OF JUDGMENT: | 16 July 2018 | |
CASE MAY BE CITED AS: | Mailmail v Atar and Anor | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 849 | |
REASONS FOR JUDGMENT
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Subject:CONTRACT – ESTOPPEL – CONSUMER LAW
Catchwords: CONTRACT – agreement to purchase shares – whether breach of contractual warranty – measure of damages recoverable
ESTOPPEL – promissory estoppel – waiver of contractual term that any variations had to be in writing
CONSUMER LAW – misleading or deceptive conduct – whether alleged representations made – indirect reliance – whether loss proved
Legislation Cited: Competition and Consumer Act 2010 (Cth)
Evidence Act 2008 (Vic)
Cases Cited:Australian Competition and Consumer Commission v Get Qualified Australia Pty Ltd (in liquidation) (No 2) [2017] FCA 709
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640
BHP Billiton Olympic Dam Corporation Pty Ltd v SteulerServices GmbH & Co KG [2014] VSCA 338
Blakeley, Ryan & Olde v Insurance Australia Ltd [2017] VSCA 378
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25
Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1
Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd & Anor (2015) 256 CLR 104
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
Play Australia Pty Ltd v Papadimitriou [2014] VSC 608
Protec Pacific Pty Ltd v Steuler Services [2014] VSCA 338
Thompson v Geminder Holdings Pty Ltd [2016] VSC 495
Varma v Varma [2010] NSWSC 785
Victoria v Tatts Group Ltd [2016] HCA 5, at [51]
Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Watson v Foxman (1995) 49 NSWLR 315
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Richardson | Mann Lawyers |
| For the Defendant | Mr S Thomas | Verduci Lawyers |
HER HONOUR:
Introduction
1 The plaintiff (“Mailmail”) seeks to recover moneys he lost as a result of a failed business investment. He paid the second defendant (“El Pharaohs”) the sum of $200,000 in July 2015, at the direction of the first defendant (“Atar”). Atar was the sole director and shareholder of El Pharaohs. Mailmail paid $50,000 for a half share in El Pharaohs. The balance of $150,000 was the agreed purchase price for his half share in a company called Skills International Pty Ltd (“Skills”), which El Pharaohs was negotiating to buy.
2 Atar subsequently transferred the sum of $50,000 to Mailmail on 8 September 2015. There is a dispute as to how this payment should be treated. Mailmail characterises it as a part repayment of the funds invested by him, whereas Atar says it was a loan from El Pharaohs.
3 The causes of action relied upon are breach of contract and misleading and deceptive conduct under s18 of the Australian Consumer Law (“ACL”).[1] The amount of damages claimed for breach of contract is $100,000, and alternatively $150,000 for the misleading and deceptive claim.
[1]Claims for unjust enrichment and a failure of consideration were abandoned at trial
4 Atar denies any breach of contract. Further, she claims in her defence that Mailmail is estopped from relying upon a contractual provision which required any variation to the Agreement to be in writing. It is alleged Mailmail verbally agreed to substitute Skills for Ozwide Skills Training Centre Pty Ltd (“Ozwide”) and did not require that variation to be in writing. Atar also denies she engaged in any misleading or deceptive conduct when she negotiated the terms of the investment with Mailmail.
5 For the following reasons, I find the breach of contract claim is made out and Mailmail is entitled to recover the sum of $100,000 from Atar. The defence of promissory estoppel was not established on the evidence. The alternative cause of action of misleading and deceptive conduct was not proved.
Background
6 Mailmail is a registered residential builder and director of Leader Homes Pty Ltd. He specialises in building customised homes and can provide finance to customers if required.
7 Atar was introduced to Mailmail by a mortgage broker known as Peter Kostandinov, who was working for Mailmail on a regular basis. The broker told Mailmail that Atar had been committed to buying an apartment in Brunswick for the sum of $400,000 but the deal had fallen through. She now wished to obtain a house and loan package in Craigieburn.
8 Mailmail first met Atar in February 2015 in Craigieburn at a Leader Homes display home, together with Kostandinov. There were general discussions held, and Mailmail outlined to Atar the various home design options he had available and finance arrangements.
9 Some two weeks later, Atar visited Mailmail at the display site at Craigieburn. The parties exchanged email addresses and mobile phone numbers.
10 In late April 2015, Mailmail met with Atar at her office premises at 1/160 Nicholson Street, Footscray. She had told him she needed a reception desk built at her premises which was why he attended at her office.
11 During the course of this visit, Atar took Mailmail on a tour of the business premises. Mailmail said the venue was approximately 10 metres by 20 or 25 metres in size. He saw a training centre where Atar provided training to students for child care, and an area where she operated a family day care centre. She told him the business was government funded or backed up by the government. He asked how this worked. She told him that they enrol and educate the students, give them a certificate that is recognised, and, once a distributor becomes successful, the government will pay her 60 per cent of the government subsidies.
12 Atar agrees she met with Mailmail on this occasion, but disagreed with some of his evidence about what she said to him. She said she did not operate a family day care centre and says that she has never done so. The business premises space which Mailmail observed was rented to other parties who provided family day care services. Atar gave evidence that El Pharaohs was engaged in the business of training and providing courses for overseas students. The company was registered on 18 June 2014.
13 Atar also denied she represented El Pharaohs received government funding in any capacity, as El Pharaohs is not a registered training organisation (“RTO”). El Pharaohs had third party agreements with RTOs who hired space at the same premises as El Pharaohs. When El Pharaohs is engaged by a RTO to conduct training courses, it receives amounts representing some 40 to 60 per cent of the amounts funded by the government to the RTO. El Pharaohs does not receive any direct government funding, as opposed to a RTO which does.
14 In early June 2015, Atar attended Mailmail’s home in Craigieburn to discuss the possible purchase of a property at 76 Domain Way, Craigieburn. During this meeting they also discussed the El Pharaohs business. Mailmail says Atar showed him a spreadsheet which set out expense items for the El Pharaohs business. He claims she told him the following, namely:
(a)the business was backed up by the government;
(b)she earns $8,000 to $12,000 per student, but if she were to operate a licensed training organisation she would be entitled to 100 per cent of the government subsidies;
(c)she advised him there was a potential of him earning between $10,000 to $15,000 per month and he said “I’m happy with 10”;
(d)that “she’s acquiring (sic) about a company that’s based in Queensland”;
(e)she also advised him that El Pharaohs was in the position of making $180,000 to $200,000 for that financial year.
15 These matters are denied by Atar, with one exception. She accepts there were negotiations on foot with Skills, but denied they were in the final stages.
16 Mailmail says he asked what the price would be to invest. Initially, Atar said $100,000 for 50 per cent of El Pharaohs and $150,000 for Skills. She agreed to halve the price for El Pharaohs when Mailmail suggested he could do the house for a better price. His evidence was that he told her to leave it with him and he would discuss it with his wife, which he did subsequently.
17 Approximately a week later, in June 2015, Mailmail attended at El Pharaohs’ premises in Footscray. Atar and Mailmail then had lunch at a kebab shop nearby. They spoke about the El Pharaohs business. His evidence was she again told him at this meeting that he could earn $10,000 to $15,000 monthly. Atar told him that Skills was based in Queensland, the man selling the company needed money urgently, and the price was $150,000. Its scope was child care or children’s training, Child Care Certificate III. Mailmail gave evidence he was convinced it was a legitimate business because it was government backed.
18 A further meeting occurred at Mailmail’s home when Atar came over for dinner. It appears this meeting was around late June.[2] They had further discussions about investing in El Pharaohs and also about the property at 76 Domain Way in Craigieburn. Atar presented him with an Excel spreadsheet showing income and also a business plan which she explained to him could result in further expansion of the company if it were to operate in Queensland. Atar denies she had a spreadsheet or a business plan with her at this meeting. She said Mailmail was showing her a spreadsheet on his computer relating to the commission paid to his former mortgage broker, “Peter”.
[2]T93 – Mailmail says “in late” but the transcript does not record which month
19 On 21 July 2015, Mailmail attended the offices of Viclaw Lawyers in Newport. He met Atar’s solicitor, Mr Mohamed Ragab (“Ragab”). Ragab provided Mailmail with a document entitled Agreement for Sale of Shares (“the Agreement”). Ragab explained the document to him, gave him a copy to take away and advised him to read it.
20 Mailmail met with Ragab and Atar a week later, on 28 July 2015. Mailmail signed two copies of the Agreement.[3] Mailmail handed over two bank cheques at the meeting, being cheques for $150,000 and $50,000 respectively, payable to El Pharaohs.[4]
[3]CB 74–83
[4]Copies of the cheques appear at CB 85
21 Mailmail also signed a share certificate prepared by Ragab at this meeting, which provided for the transfer of a share in El Pharaohs to Mailmail. The certificate in evidence is dated 30 July 2015.[5] Mailmail was unable to explain why it was dated 30 July. A company search of El Pharaohs reveals this transfer was registered and Mailmail was listed as a shareholder.[6] He held one share and the remaining share was held by Atar.
[5]CB 84
[6]CB 114
22 Approximately two weeks after signing the Agreement, Mailmail and Atar met the owner and director of Skills at a café in Craigieburn called ‘The Chocolate Bar’. The director of Skills told Mailmail and Atar the asking price of Skills was $110,000. When Mailmail put to him the price was $150,000, the vendor of Skills said he had always maintained he was asking $110,000. He went on to say he would be happy to take $80,000 based on $40,000 being paid in cash. Mailmail told him that he did not deal in cash and the meeting ended. After the meeting, Mailmail told Atar he was not happy to proceed. She replied, “Fine, if that’s the case”.
23 Mailmail spoke to Atar on the telephone two days later. He said he was not happy that “a dishonesty” had occurred with having being told the price was $150,000 when the vendor was asking for $110,000. He asked for all of his money to be paid back in full. During that conversation, Atar mentioned another RTO based in Westmeadows called Ozwide. Mailmail did not feel comfortable with proceeding any further. However, she told him she would arrange a meeting and he agreed to go to see what this company was proposing. Her evidence was that she told Mailmail about Ozwide, which was another RTO which offered training in security with a lot of training history. She said Mailmail did not raise any objection.
24 On about 21 August 2015, Mailmail and Atar attended commercial premises located in Mickleham Road, Westmeadows, and met with Mehmet Nevres (“Nevres”). Nevres was the director of Ozwide. Nevres showed them around and discussed what he did. Mailmail says Nevres told them that under the scope of a RTO, he had Security Certificate III and First Aid. He said his classes were always full, but that he had decided to move on to something different. Nevres told Mailmail and Atar that Ozwide currently did not have any student enrolments for its training courses. Nevres told Mailmail and Atar that he would sell all of the shares in Ozwide to El Pharaohs for the sum of $90,000. The meeting concluded.
25 Nevres gave evidence that he had been approached by Atar, who said a mutual friend had told her he was thinking about selling his “school”. Atar set up a meeting with Nevres which she and Mailmail attended. Nevres confirmed this was the only meeting which Mailmail attended. Nevres said Atar did most of the talking and they discussed terms and the price. He recalled the price started off at about $100,000 and went down to $90,000. Nevres emailed financial documents to Atar the next day, including tax returns. He spoke to Atar on the phone when she was in Sydney. She raised discrepancies between what was said at the meeting and the financials provided. Nevres thought she had misunderstood, but in order to move the sale along, he dropped the price down to $80,000.
26 Nevres met Atar a few days later and they agreed to go ahead with the sale. Nevres’ recollection was that the deal went ahead a week or so later. He used Atar’s lawyer, at her recommendation, as he did not have his own lawyer. They signed the contract and Atar gave him a bank cheque.
27 Under cross-examination, Nevres’ recollection was that it was more likely after July 2015 that Ozwide had no students. He also said that Ozwide was never a government funded RTO. He said Ozwide was not government funded and would take money from the students and not the government. He agreed that at the end of the first meeting there was no firm agreement about purchasing Ozwide. Nevres also accepted he did not see Mailmail at Ragab’s offices when he signed the contract.
28 Mailmail’s evidence is that he spoke to Atar in the car park after the meeting with Nevres. He told her he was not keen to go ahead with the purchase of Ozwide, particularly as the government subsidies for security courses were only about $1,200 a year. She replied “Leave it for now and have a think about it”.
29 Two days later, Atar and Mailmail spoke on the phone. Mailmail said he demanded his money back in full. Atar denies he asked for his money back.
30 On about 22 August 2015, Atar telephoned Mailmail and told him that she had spoken with Nevres again and she had negotiated a price reduction to $80,000. She said she had agreed to that figure on behalf of El Pharaohs and that her lawyer, Ragab, was preparing the relevant documents for the acquisition of Ozwide. Mailmail replied he was not interested due to the fact there were no students and he had invested $150,000 but now they were discussing $80,000. He said he would come and see her within a week. Atar’s evidence differs. She says that Mailmail made no objection when she told him about the purchase. Atar also misrepresented the status of Ozwide to Mailmail by telling him that it was a RTO, whereas Nevres confirmed in his evidence that this was not the case.
31 On 4 September 2015, a Change of Company Details form was electronically lodged for Ozwide. The form details a number of changes to the company on that date, including:
(a)Atar was appointed director and secretary of Ozwide;
(b)Nevres’ 14 shares in the company were transferred to Atar and Mailmail in equal lots of seven shares; and
(c)Nevres ceased to be a director and secretary of Ozwide.[7]
[7]CB 132
32 There is a dispute as to what happened on 5 September 2015. A meeting was pleaded in Atar’s defence that she had met with Mailmail and they attended upon Ragab at Viclaw’s office on that date. The pleading had alleged that the parties had agreed to vary the Agreement to allow for the purchase of Ozwide, which Mailmail denies and says he did not consent to any variation of the Agreement. This matter was put to Mailmail in cross-examination and he denied he had attended the meeting. Subsequently, during the course of Atar’s evidence, she said she was not sure he had attended that meeting. Further, the transfer of the shares had already occurred on the preceding day, such that any consent given by Mailmail, assuming he was present at the meeting on 5 September 2015, was otiose.
33 Mailmail attended at the office of El Pharaohs on 8 September 2015 and met with Atar. Mailmail says he demanded repayment of the moneys he had invested in El Pharaohs and threatened her with legal action. He said Atar told him she could only repay the sum of $50,000, as that effectively was all she had in her bank account, as the balance of the money had been spent. She said she needed a few months to repay the rest.
34 Atar disputes Mailmail’s account of this meeting. Atar’s evidence is that Mailmail told her that he had had a car accident and was uninsured. He had hit a BMW valued at $200,000. She said he started to get very upset and was sobbing and said that, as he was uninsured, he would go bankrupt unless he could get some money. She said El Pharaohs only had $50,000 in its bank account and that money could be provided to Mailmail as a loan. She said Mailmail agreed to this and said he would transfer the money back in a couple of weeks. On the basis of his promise, Atar agreed to transfer the money in El Pharaohs’ bank account to Mailmail. It is not disputed that the sum of $50,000 was transferred that day by way of electronic transfer into the bank account of Mailmail’s wife at Mailmail’s request.
35 Prior to this meeting, there was a series of text messages between the parties which were in evidence.[8] Atar had a bad car accident on or about 6 September 2015. She had sent a text message to Mailmail advising him of this, coupled with a photograph. He replied with a text on 7 September 2015 to say that he had been in a car accident as well and one of his job sites robbed. He conceded in his evidence that this was a lie. He said he had only said these things with a view to gaining sympathy from Atar so that she might be persuaded to repay him the moneys he was owed.
[8]CB 89–109
36 Mailmail denies he referred to the car accident when he met Atar on 8 September 2015. Having sent a text on 7 September 2015 referring to a car accident, it seems unlikely this matter was not discussed at the meeting on the following day. This is especially so given his own account that he had made it up to gain sympathy from Atar.
37 On 21 September 2015, Mailmail’s solicitors, Mantoo & Co Lawyers, wrote a letter to Atar demanding repayment of the outstanding moneys invested, being $150,000.[9]
[9]CB 831
38 A further meeting took place on 5 October 2015. There is a dispute about what occurred on this occasion. Mailmail’s evidence is that he and his friend, Danny Rolston, whom he took along as an independent witness, attended the office of El Pharaohs and met Atar. Mailmail says he demanded payment of the sum of $150,000, and told her he was there to get his money and Atar was going to pay him. Atar alleges Mailmail then assaulted her. Atar says that upon hearing her distress, her receptionist came into the room and saw Mailmail pulling her hair. Mailmail denies he assaulted Atar and said he visited to ask for his money back. Mailmail was provided with a s128 certificate under the Evidence Act 2008 (Vic) in respect of his evidence regarding the alleged assault. Neither the receptionist nor Mr Rolston were called to give evidence. The failure to call Mr Rolston was raised by Atar’s counsel and a Jones v Dunkel inference was sought to be drawn. Similarly, the failure to call Atar’s receptionist was referred to by counsel for the plaintiff. The matter has been reported to the police and charges are pending in the Magistrates’ Court.
39 Ultimately, what occurred at the meeting on 5 October 2015 has no bearing upon the determination of the issues to be resolved in this proceeding. Consequently, it is not necessary for me to make any findings about whose version of events should be preferred.
40 Ozwide was deregistered on 1 May 2017.[10] On 12 November 2017, El Pharaohs was recorded as being deregistered on an ASIC extract.[11] Both companies were deregistered by ASIC as a result of a failure to lodge documents.[12] The effect of deregistration is that the company ceases to exist unless and until such time as it may be reinstated. The defence filed on behalf of the second defendant pleaded a counterclaim seeking repayment by Mailmail of the sum of $50,000 allegedly lent by El Pharaohs on 8 September 2015. As the company no longer exists, the counterclaim relating to the alleged loan was not pursued at trial.
[10]CB 121
[11]CB 112
[12]s601AB Corporations Act
41 Mailmail has not been repaid any moneys save for the $50,000 repaid in September 2015. He has not received any profits from his investment.
42 This case revolves around a number of oral discussions between Atar and Mailmail with hardly any contemporaneous documentation in support of either party’s case. A lot of matters which are alleged to have been said by one are flatly denied by the other. Therefore, many of my findings depend upon my assessment of their reliability as witnesses.
43 Mailmail admitted he lied about having a car accident and being robbed to try to garner sympathy from Atar. The fact that he was willing to lie when it suited reflects adversely upon his credibility. It was also difficult to follow his evidence at times, because he would give incomplete and confusing answers.
44 But, having said that, I did not find Atar to be a particularly impressive witness. She appeared to have a selective memory and was often evasive, especially when being questioned about her financial affairs. There were certain aspects of her evidence which cast doubt about her credibility: for instance, the fact that she repeatedly said the price for Skills was always $150,000, when the evidence reveals that the vendor was seeking a lower price. Mailmail said the vendor always maintained he was asking for $110,000. Exhibits P5 and P6 show that the figures referred to in the draft sale agreement for the purchase price of Skills totalled $97,000 inclusive of GST. In cross-examination, Atar said anything could have been attached to the covering email, being Exhibit P5; the suggestion being that Exhibit P6 was not the document that had been attached. She said the sale price had a cash component and there was no discount on $150,000. This clearly conflicts with what the vendor said at their meeting and the draft sale agreement produced to the court. I reject Atar’s evidence on this point and find there was no fixed agreement that the price for Skills was always $150,000.
45 When cross-examined on her financial records, Atar was unable to recall why she had received the sum of $83,000 into her bank account in January this year. This is a sizeable sum. It did not ring true that Atar had absolutely no recollection of what this payment represented. As a result of these matters and her demeanour in general, I treat her evidence with a degree of caution.
Issues
46 The issues that fall for determination are:
(a) did Atar and/or El Pharaohs breach the warranty contained in clause 6 of the Agreement and, if so, is Mailmail entitled to recover the sum of $100,000 as damages;
(b) did Mailmail agree to vary the Agreement by substituting Skills for Ozwide and, if so, is Atar entitled to rely upon the defence of promissory estoppel in consequence of his alleged unconscionable conduct;
(c) did El Pharaohs engage in misleading and deceptive conduct in breach of s18 of the ACL and, if yes, was Atar involved in the contravention by El Pharaohs;
(e) has Mailmail suffered loss and damage because of any misleading and deceptive conduct.
Breach of contract
47 The resolution of the contractual claim self-evidently turns upon the proper construction of the terms of the Agreement.
48 The principles relating to the construction of contracts are well settled. The High Court restated the principles relating to construction of contracts in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd & Anor,[13] in which French CJ, Nettle and Gordon JJ held:
[13] (2015) 256 CLR 104
“[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
[48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.”
[49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
[50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
[51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption ‘that the parties … intended to produce a commercial result’. Put another way, a commercial contract should be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.”
(citations omitted.)
49 This summary of the principles of construction was referred to more recently in Victoria v Tatts Group Ltd[14] and by the Victorian Court of Appeal in Blakeley, Ryan & Olde v Insurance Australia Ltd.[15]
[14][2016] HCA 5, at [51]
[15][2017] VSCA 378 at [166]
50 Both Atar and El Pharaohs are named as vendor in the heading of the Agreement. Despite this, the recitals consistently refer to Atar as the vendor. The identity of the vendor is referred to in paragraph A of the recitals as being the sole director/secretary and shareholder of El Pharaohs, which can only be a reference to Atar. Counsel for the parties agreed that Atar was the vendor, in the course of final addresses. Mailmail is identified as the purchaser in the heading to the Agreement.
51 Paragraph C of the recitals states that the vendor is in the final stage of buying a new company otherwise known as Skills International Pty Ltd (“SI”). Recital D states that upon the Vendor’s successful purchase of SI, the vendor will be registered as the sole director/secretary and shareholder of the company. The vendor’s total number of shares in SI will be two shares which will be totally possessed and fully paid for by the vendor.
52 Recital F states as follows:
“The purchaser is aware of the above Recitals and wishes to pay the vendor, in advance, the sum of $150,000 towards the purchase of SI in return for the Vendor transferring %50 of SI shares, upon the successful settlement of the purchase of SI, to the Purchaser.”
53 By recital G, the vendor agreed to sell and the purchaser agreed to buy 50 per cent of EIT and SI shares for the price and upon the terms set out hereunder.
54 Clause 2 sets out the agreement between the parties as follows:
“The vendor hereby agrees to sell and the purchaser hereby agrees to purchase:
(a) %50 of EIT shares for the purchase of price of $50,000 (“EIT purchase price”);
(b) %50 of company 2 shares for the purchase of price of $150,000 (“SI purchase price”);
(c) The purchase price for EIT and SI shall be paid upon executing this agreement.”
55 Under clause 3, the payments to be made by the Purchaser were by way of two separate bank cheques payable to El Pharaohs identified as “the company”.
56 Sub-paragraph (c) of paragraph 3 provided that:
“The payments, namely the $200,000 is to be invested in the company and entered into the company’s records as a loan given to the company by the shareholders. The shareholders’ contribution in this loan is divided as follows:
(i) the vendor’s share in this loan is $125,000; and
(ii) the purchaser’s share in this loan is $75,000.”
57 Vendor’s warranties are contained in clause 6. By clause 6(a)(ii) the following warranty was given:
“The vendor unreservedly warrants to the purchaser that if the vendor’s purchase of SI does not transpire, the vendor refunds SI purchase money, namely $150,000 to the purchaser.”
58 Sub-section 3 of clause 6 is also relevant. It provides as follows:
“(iii) the Vendor acknowledges that:
(1)the warranties have been given with the intention and for the purpose of inducing the purchaser to enter into this agreement; and
(2)the purchaser has entered into this agreement and agreed to the purchase price payable for the shares on the basis of and in full reliance upon the warranties.”
59 Clause 10 deals with waiver or variation. Clause 10(c) provides as follows:
“The variation or waiver of a provision of this agreement or a party’s consent to a departure from a provision by another party will be ineffective unless in writing executed by the parties.”
60 The Agreement was executed by Atar on behalf of El Pharaohs as director and in her own capacity. Ragab witnessed both Mailmail’s and her signature.
61 According to Atar’s evidence, the purchase price for Skills was always $150,000, being the total price. There is no evidence to suggest that she was going to contribute any moneys towards the payment of the purchase price. Consequently, the amount paid by Mailmail did not represent a half share of the Skills business as stated in clause 2 of the Agreement but in fact represented the full purchase price.
62 The provisions relating to the recording of a loan similarly do not correspond with the facts as known. The amount of the moneys invested by Mailmail was $200,000. There was some evidence to the effect that this clause was put in the Agreement as a basis for obtaining some benefit for taxation purposes. There was no evidence of a loan agreement ever being signed and the moneys in fact do not represent a loan by El Pharaohs shareholders to the company. All of the moneys were invested by Mailmail such that the proportions recorded in the Agreement in clause 3(c) do not correspond with what occurred. It is stated that the vendor’s share (which is Atar) was $125,000 and the purchaser’s share of the loan was $75,000. It is clear on the evidence that Atar did not provide any moneys in respect of the investment, so she was not then entitled to have those moneys recorded as a loan by her to the company.
63 Leaving aside the various anomalies in the Agreement, the issue to be determined is the effect of the warranty contained in clause 6(a)(ii). As a matter of construction, the wording of that clause is unambiguous. The vendor, namely Atar, unreservedly warrants that if the purchase of Skills does not transpire, the vendor will refund the purchase price, namely $150,000, to the purchaser. The clause is not subject to or qualified by any temporal limits or conditions as to why the purchase of Skills could not proceed. It simply says that in the event it does not transpire, the moneys are to be refunded. It is beyond doubt that the purchase of Skills did not transpire, with the result that clause 6(a)(ii) should be given the effect the parties agreed upon. Further, there is the express acknowledgment in clause 6(a)(ii) that the warranties were given with the purpose of inducing the purchaser to enter into the Agreement and the purchaser entered into the Agreement on the basis of and in full reliance upon the warranties. In those circumstances, Mailmail is entitled to rely upon the warranties provided under clause 6.
64 It was not suggested or argued before this Court that clause 6 did not have the meaning that it has on its face. There was no argument put on any construction point at all, let alone to the effect that the clause was inoperative for some reason. The parties expressly agreed to this clause which is unambiguous in its meaning. Given the purchase of Skills did not transpire, Atar, as vendor, was contractually bound to refund the purchase price paid by Mailmail for Skills. As she has not done so, I find that she is in breach of the contractual warranty provided in clause 6. The parties acknowledged that Mailmail was refunded $50,000. The amount of damages payable by Atar for breach of warranty is the balance left over, namely $100,000.
65 Paragraph 6 of Atar’s defence dated 30 August 2017 pleads that Mailmail is not entitled to a refund because he agreed to a verbal variation of the Agreement between 26 August and 5 September 2015 to allow El Pharaohs to purchase Ozwide in the event that the purchase of Skills did not transpire. The particulars to that paragraph refer to a meeting on 5 September 2015 between the parties and Ragab to “confirm those discussions and purchase Ozwide.” The question of whether he agreed to any verbal variation of the Agreement as pleaded and its possible effect are dealt with under the heading in this judgment dealing with the defence of promissory estoppel. For the reasons set out, I find Mailmail did not agree to a verbal variation of the Agreement in the terms alleged or at all.
66 The remaining $50,000 of the $200,000 invested was for the purpose of buying a half share in El Pharaohs. There is nothing in the Agreement to the effect that if the investment with Skills did not proceed, then the moneys invested in El Pharaohs could be returned. Nor was there any term to the effect that the moneys invested in El Pharaohs by Mailmail could be returned if, for example, some event did not occur or the company failed. There is no contractual provision by which Mailmail can recover the moneys invested in El Pharaohs representing his half share in that business. Consequently, the claim for damages for breach of the warranty in clause 6 is limited to $100,000, being the balance of the funds invested by Mailmail referable to the aborted purchase of Skills.
Promissory estoppel
67 Atar relies upon the principles of promissory estoppel as a defence to overcome the effect of clause 10(c) of the Agreement. The latter clause provides that any variation or waiver or consent to a departure from any provision would be ineffective unless in writing executed by the parties.
68 Paragraph 19 of Atar’s defence pleads that Mailmail’s attempt to enforce clause 10 is unconscionable and would cause the defendants unfair detriment because Mailmail made representations otherwise. In the circumstances, it is alleged “[i]t would be unfair or inequitable to allow the Plaintiff to rely on clause 10 to discount the purchase of Ozwide in lieu of Skills International.” It is not clear what is meant by this allegation. Nor is it pleaded that the plaintiff should be estopped from relying upon clause 6, being the requirement to refund the moneys if the Skills purchase did not transpire.
69 The alleged representations made by Mailmail are particularised as follows:
·he agreed to purchase Ozwide instead of Skills;
·he agreed to vary the Agreement to allow the direction of his investment towards the purchase of Ozwide instead of Skills;
·he would accept a verbal variation of the Agreement and not require this particular variation to the Agreement to be in writing.
70 The defence then pleads that in reliance upon these “undertakings”, the defendants proceeded to purchase Ozwide and allocate 50 per cent of the shares in Ozwide to Mailmail.
71 The elements needed to found a promissory estoppel are:
(a) a clear representation is made by the promisor;
(b) the promisee acts to its detriment in reliance upon the representation;
(c) it would be unconscionable in the circumstances to allow the promisor to resile from the representation made.[16]
[16]Legione v Hateley (1983) 152 CLR 406
72 The High Court in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd stated the language used must be “precise and unambiguous”:[17]
“[F]or a representation to found an estoppel it must be clear. In Low v Bouverie, it was said that the language used must be precise and unambiguous. This does not mean that the words used may not be open to different constructions, but rather that they must be able to be understood in a particular sense by the person to whom the words are addressed. The sense in which they may be understood provides the basis for the assumption or expectation upon which the person to whom they are addressed acts. The words must be capable of misleading a reasonable person in the way that the person relying on the estoppel claims he or she has been misled.” (citations omitted)
[17] (2016) 260 CLR 1, at [35]
73 In Varma v Varma,[18] the plaintiff sought to compel a promise allegedly made to her by her father in law to transfer the family company to her upon his death. The promise was held too uncertain to be enforceable. Ward J referred to the following cases which show that unconscionability is hard to establish when the representation is unclear or ambiguous:
[18][2010] NSWSC 785
“[439] In Australian Crime Commission v Gray [2003] NSWCA 318, at [193], Ipp JA noted that
‘[w]hile, often, an ambiguous or imprecise representation will not give rise to a promissory estoppel that could not inevitably be the case. In virtually every statement of existing fact or future intent some ambiguity or imprecision of language may be found’.
[440] In Galaxidis v Galaxidis [2004] NSWCA 111, where the Court of Appeal considered a proprietary estoppel claim, Hodgson JA (at [91]) quoted Ipp JA’s view in Gray (at [200]) that
‘the underlying reason for the rule that, generally speaking, an ambiguous or unclear representation will not give rise to a promissory estoppel is that the foundation of promissory estoppel is unconscionability. Unconscionability is usually difficult to establish when the representation is ambiguous or unclear.’
[441] In Galaxidis, Hodgson JA then went on to say (at [93]–[94]):
‘In my opinion, the effect of this Court’s decision in Gray is that even if a representation is insufficiently precise to give rise to a contract (as in the present case), that fact does not necessarily disqualify the representation from founding a promissory estoppel. Much will depend upon the circumstances in which the representation is made and the context against which it is to be considered. In its context, the representation is sufficiently clear and unambiguous if it is reasonable for the representee to have interpreted the representation in a particular way being a meaning which it is clearly capable of bearing and upon which it is reasonable for the representee to rely. In these circumstances, it would be unconscionable for the representor to deny responsibility for the detriment that arises because of that reliance ...
On the other hand, if it is not reasonable for the representee to rely on the meaning he attributes to the representation in that had he acted reasonably he would have attributed an innocent meaning to the representation, then it cannot be unconscionable for the representor to deny responsibility for the detriment that the representee sustains because of that unreasonable reliance.’ ” (Original emphasis)
74 To create an estoppel, the promisee must demonstrate it has acted in reliance on the assumption created:
“Not only must the representation be such as to be able to create the assumption or expectation in question, it must be shown that that assumption was in fact acted upon. This derives from the basal purpose of the doctrine of estoppel, which is to avoid a detriment by compelling the party who has created an assumption, or expectation, on which the innocent party has acted, to adhere to it.”[19]
[19]Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1, at [39]
75 Walton Stores (Interstate) Ltd v Maher[20] was a seminal case expanding the doctrine of promissory estoppel. The appellant negotiated an agreement to lease over property owned by the respondents. Pursuant to agreed terms, the respondents demolished a building and commenced construction of a new building. The appellant required that plans and specifications be prepared to suit its purposes as tenant. The building was 40 per cent completed when the appellant said it would not execute the lease. The respondents successfully sued to enforce the agreement. Dismissing the appeal, the High Court found given the failure to act to dispel the representation that the lease would be executed, and knowing that the respondent would suffer detriment, it was unconscionable for the appellant to refuse to finalise the lease. The appellant was estopped from retreating from its implied promise to complete the contract.
[20](1988) 164 CLR 387
76 In their joint reasons, Mason CJ and Wilson J emphasised the central feature giving rise to equitable estoppel is unconscionability on the part of the promisor:
“The foregoing review of the doctrine of promissory estoppel indicates that the doctrine extends to the enforcement of voluntary promises on the footing that a departure from the basic assumptions underlying the transaction between the parties must be unconscionable. As failure to fulfil a promise does not of itself amount to unconscionable conduct, mere reliance on an executory promise to do something, resulting in the promissee changing his position or suffering detriment, does not bring promissory estoppel into play.”[21]
[21]At 406
77 The focus on unconscionability is reflected in recent authority. In Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd, Nettle J stated:[22]
“The foundational principle on which equitable estoppel in all its forms is grounded is that equity will not permit an unjust or unconscionable departure by a party from an assumption or expectation of fact or law, present or future, which that party has caused another party to adopt for the purpose of their legal relations.”
[22](2016) 260 CLR 1, [217]
78 The first representation is that Mailman agreed to purchase Ozwide instead of Skills. The defendants plead Mailmail verbally agreed to vary the Agreement between 26 August and 5 September 2015 to allow El Pharaohs to purchase Ozwide, in the event the purchase of Skills did not transpire. A meeting on 5 September 2015 is referred to in the particulars to paragraph 6 of the defendants’ defences dated 30 August 2017 between Atar, Mailmail and Ragab “to confirm those discussions and purchase Ozwide”.
79 This meeting was put to Mailmail in cross-examination which he denied attending. Atar in her evidence departed from the pleaded case and said she did not think Mailmail was there that day.[23] There was no explanation given to the court why this significant departure in the evidence occurred. Despite this evidence, Atar’s counsel continued to maintain that Mailmail had been present on 5 September at Ragab’s offices in his written closing submissions.[24] This was plainly incorrect.
[23]Transcript (“T”) T321
[24]Paragraph 25
80 Whilst Mailmail did attend one meeting with Nevres, his evidence was clear he did not wish to proceed with the purchase and he informed Atar of this following the initial meeting. The deal was not concluded at that first meeting, as was conceded by Nevres, who continued to negotiate separately with Atar thereafter. Nevres confirmed he did not meet Mailmail again. Mailmail repeatedly told Atar he did not wish to proceed with the purchase of Ozwide. Atar’s evidence was that she had advised Mailmail about the purchase, he was happy and did not object to it, and she went back to see Ragab. She claimed there was going to be an agreement to vary the original agreement which “[w]e were going to do so with Ragab”,[25] but acknowledged it never eventuated. Atar said that Mailmail had sent her an email about the purchase of Ozwide but this was not produced by Atar.
[25]T432
81 I reject Atar’s evidence that Mailmail was willing to go along with the purchase of Ozwide and prefer Mailmail’s evidence on this issue. I find Atar unilaterally proceeded with the purchase of Ozwide without Mailmail’s consent or approval. She negotiated the price down with Nevres and then attended upon Ragab on 5 September 2015 when the settlement of the transaction occurred. The deal was struck with Nevres at least by 4 September 2015, being the day the change in the ownership of shares was registered at ASIC.
82 The second representation is that Mailmail agreed to vary the Agreement to allow the direction of his investment towards the purchase of Ozwide instead of Skills. Atar’s evidence was that they were going to see Ragab to arrange to have the Agreement varied but conceded that did not come about. I am not satisfied on the evidence that Mailmail made this representation as alleged. As stated previously, I accept his evidence that he did not give his consent to the purchase of Ozwide. This representation was not established on the evidence.
83 The third representation pleaded was that Mailmail would accept a verbal variation to the Agreement and did not require this particular variation to the Agreement to be in writing. There was no evidence from Atar to this effect. When cross-examined, Mailmail denied he agreed to waive the requirement for any variation to the Agreement be made in writing.[26] Again, this representation was not proved.
[26]T144, L20–27
84 Consequently, I find that Mailmail did not make any of the representations alleged in the particulars in paragraph 19 of the defence. That being so, the defence of promissory estoppel fails at the first hurdle. Even if I am wrong on this, the evidence fell short of establishing any detrimental reliance by Atar on anything allegedly said or done by Mailmail when she determined to buy the Ozwide business. The evidence reveals she negotiated further with Nevres directly regarding the purchase. There was no evidence from her to the effect that she would have not proceeded with the purchase of Ozwide had she been aware of Mailmail’s lack of consent. I find she entered into the purchase of Ozwide of her own volition and not in reliance upon the alleged representations said to have been made by Mailmail.
85 The claim as pleaded is that Mailmail’s attempt to enforce clause 10, being the requirement for a variation to be in writing, is unconscionable. Given the representations and detrimental reliance pleaded were not established, the issue of unconscionability does not fall to be considered. Consequently, Mailmail was entitled to rely upon the terms of the Agreement and is not estopped from doing so.
Misleading and deceptive claim
86 Mailmail seeks damages for breach of s18 of the Australian Consumer Law (“ACL”), contained in Sch 2 to the Competition and Consumer Act 2010 (Cth). Section 18 provides that:
“A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive.”
87 A person who suffers loss or damage because of the contravening conduct of another person can recover the amount of that loss or damage under s236 of the ACL against the other person or against any person involved in the contravention.
88 Mailmail seeks to recover all the moneys he invested, the balance of which is $150,000 taking into account the transfer of $50,000 made by Atar in September 2015.
89 In this case, the misleading and deceptive conduct relied upon depends entirely upon what was said during the course of oral discussions prior to Mailmail investing his money in El Pharaohs. The words spoken need to be proved with a suitable degree of precision and that those words were misleading and deceptive in all the circumstances. There are no contemporaneous documents or other corroborative evidence in evidence concerning the representations alleged to have been made by Atar.
90 In Watson v Foxman, McLelland CJ in Equity said, in respect of alleged oral misrepresentations, the following: [27]
“Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously describe as “misleading”) within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.”
[27](1995) 49 NSWLR 315, at 318-19
91 In Play Australia Pty Ltd v Papadimitriou, Daly AsJ considered a claim for misleading and deceptive conduct largely based upon alleged oral representations and limited contemporaneous documents, and noted the associated difficulties of proof as follows: [28]
“All of the above claims and the submissions regarding their potential impact upon the credit of the parties have merit. Indeed, it could be said that each of the main witnesses have a track record of making statements and engaging in conduct which indicates a willingness to be loose with the truth when it is in the perceived commercial interests of the parties and their associates to do so.
In these circumstances, it can be difficult to make a judgment as to which party, or which witness, is more or less creditworthy than another, such that it would not be possible to determine that on every issue where there is a dispute of fact, the evidence of one party or witness is to be preferred over that of another. Rather, it is necessary to evaluate the evidence in the context of the evidence as a whole, the inherent plausibility of the evidence concerned, including its plausibility in the context of the subsequent statements and pleadings of the parties, the existence and weight of corroborative evidence, and the likelihood that the evidence is likely to be at least in part shaped through the prism of self‑interest. That task is made just that more difficult by the paucity of contemporaneous documents, which in turn is consistent with the rather free‑wheeling approach to business shown by the parties.”
[28][2014] VSC 608, [244]-[45]
92 Similarly, in Varma v Varma[29] Ward J commented on the fallibility of human memory and the need to persuade a court to a level of actual persuasion that an event had occurred:
[29][2010] NSWSC 786
“[424] Adding to the need for close scrutiny of claims made in respect of arrangements with deceased persons who are unable to give their own account of events, is the recognition as to the fallibility of human memory explained by McLelland CJ in Eq (as his Honour then was) in Watson v Foxman (at 318), as follows:
‘... human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.’
[425] His Honour noted (at 318–319) that:
Each element of the cause of action [there for misleading and deceptive conduct though his Honour expressly noted that the principles so espoused were true also for claims based on contract and equitable estoppel] must be proved to the reasonable satisfaction of the court, which means that the court “must feel an actual persuasion of its occurrence or existence”. Such satisfaction is “not ... attained or established independently of the nature and consequence of the fact or facts to be proved” including the “seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding”: Helton v Allen (1940) 63 CLR 691 at 712.
Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a cause of action ..., in the absence of some reliable contemporaneous record or other satisfactory corroboration.
[426] In Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810; [2008] ATPR 42–240 (at [41]) Rares J cited the above passage and noted that his Honour’s observations were just as apposite in a case where the question arises as to what oral terms of the contract were agreed in the course of negotiations.”
93 I need to be reasonably persuaded that El Pharaohs made the alleged representations to Mailmail, being the first requirement to show that the conduct occurred, being a question of fact. The next step is to decide the characterisation of such conduct in order to determine whether it was misleading and deceptive or likely to mislead or deceive.[30] Characterisation usually requires consideration of whether the impugned conduct viewed as a whole has a tendency to lead a person into error. It also involves assessing the notional cause and effect between the conduct and the state of mind of the person who claims to have been misled. The test is an objective one.[31] Irrespective of whether the conduct is likely to produce confusion, it cannot be characterised as misleading unless in all the circumstances, it leads the representee into error.[32]
[30]Australian Competition and Consumer Commission v Get Qualified Australia Pty Ltd (in liquidation) (No 2) [2017] FCA 709
[31]Per French CJ in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25, [25]
[32]Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, 198
94 The representations allegedly made by El Pharaohs to Mailmail are set out in paragraph 11 of the amended statement of claim dated 23 March 2017 (“ASC”). If the representations were made, then I am satisfied they would be regarded as having been made “in trade or commerce” as they relate to transactions conducted for commercial gain.[33]
[33]Miller’s Australian Competition and Consumer Law annotated ( Edition, 2108) para [ACL.18.60], [CCA.4.540]
95 It is alleged in paragraph 14 that each of the representations listed in paragraph 11 were misleading and deceptive. But the grounds upon which they are said to be misleading as stated in the particulars to paragraph 14 do not correspond with each of the pleaded representations. Paragraph 14 was restricted only to the representations set out in paragraph 11(b), (d), (f), (g) and (h).
96 Despite this omission, I have proceeded on the basis that the plaintiff seeks to rely upon each of the representations pleaded in paragraph 11 as being misleading and deceptive.
97 Dealing with the pleaded representations in order, it is pleaded that El Pharaohs represented:
(a) It had government funding
98 Mailmail’s evidence is that he was told by Atar at the meeting held around 15 April 2015 at El Pharaohs’ premises that the training centre was government funded or backed up by the government. He said, “[t]hey are the exact words she used.” He said:
“I literally asked her how is it like backed up by the government. Apparently ... they literally enrol and educate, they give them a certificate that’s recognised by the nation and once a distributor becomes successful, the government will pay her 60 per cent of the subsidiaries.(sic)”[34]
[34]T90
99 In contrast, Atar said she did not go into all the details of how the business works but explained to Mailmail that El Pharaohs was not a RTO, was not directly government funded. She said:
“I don’t know if I got into – right into all of the details, but I did tell him I get a contract from RTOs. I’m not the RTO, I’m not funded, I don’t get subsidies directly from the government. Obviously, that can’t happen, and he knew that. How else would I run it?”[35]
[35]T217
100 Mailmail’s evidence was that Atar reiterated at their meetings at his home and later at the kebab shop that the business was government funded or government backed. That was the reason he was convinced it was a legitimate business. Again in cross-examination, he said Atar told him El Pharaohs received 60 per cent government funding.[36]
[36]T90–93 and T125
101 In her evidence, Atar said she talked generally about how government funding works, that the government pays a RTO a total of about $10,000 per student. A RTO can claim 100 per cent of funding to make a profit margin. El Pharaohs was paid by the RTOs who in turn were funded by the government.
102 I am satisfied that Atar did say that El Pharaohs received income representing around 60 per cent of the amounts paid to RTOs by the government. In this way, El Pharaohs did receive payments from the government albeit indirectly. Having observed each of the parties, I consider Mailmail misunderstood how the business of El Pharaohs operated to the extent that he thought the payments were made directly by the government to El Pharaohs. For the reasons explained by Atar, this was not the case. El Pharaohs was not government funded or backed itself. I am not persuaded on the state of the evidence that Atar made the representation as pleaded in sub-paragraph (a).
(b) It owned all of Level 1, 160 Nicholson Street, Footscray, where El Pharaohs business was being conducted
103 The evidence is that Mailmail attended the premises where Atar operated her business at Unit 1, 160 Nicholson Street in Footscray, on or about 15 April 2015. There were discussions about a reception desk which was to be built. She took him on a tour of the premises. Mailmail did not give evidence that Atar told him that El Pharaohs owned all of Level 1, 160 Nicholson Street, Footscray. This might have been an assumption he made, but this representation was simply not proved.
(c) It operated a family day care centre
104 Mailmail’s evidence was that Atar took him to a room in the premises where she said she operates a family day care centre. In cross-examination he confirmed that Atar ran a child care centre at the back. Atar’s evidence is that she talked generally about short courses being delivered at the time by El Pharaohs, such as first aid and Certificate III and Diplomas in Early Childhood Education and Care at the meeting on 15 April 2015. She denied she said she operated the family day care centre. I consider Mailmail misinterpreted what Atar said in respect of the provision of courses by El Pharaohs at the premises and that Atar did not say that she operated the family day care centre as alleged by Mailmail. I find this representation is not proved.
(d) It would yield income for Mailmail in the range of $10,000 and $15,000 per month in the event that he invested in it
105 Mailmail’s evidence was that he was told by Atar at the meeting at his home that there was a potential of him earning between $10,000 and $15,000 per month, and he replied “I’m happy with 10.”[37] At the meeting at the kebab shop he says that Atar told him the monthly earnings would be $10,000 to $15,000.
[37]T91
106 His evidence was as follows:
“What did she did she say about those monthly earnings?......10 – 15 thousand dollars. However, the – when she was training organised, that’s like under the scope. If you to get more modules of different courses, you can –you will be able to – like, there’s a great potential that you can literally expand up it providing different training in different sectors to go to go in that funding.”[38]
[38]T93
107 Atar’s evidence was that Mailmail told her “he wanted to invest in a business, requiring a cash flow” and “obviously he understood if he brings the students, even if it was 60 per cent, that were involved with El Pharaohs based on those third party contracts, he would get his profits, you know, after all expenses had been paid”.[39] She denied that she put it in the way suggested by Mailmail. Atar denied she said $10,000 to $15,000 per month.[40] Atar does admit that she engaged in discussions as to how profits would be generated. She said: “I explained to him how it works, you have a student, you have a funding that’s allocated to a student, you are a third party. You get a certain percentage of that after expenses are paid. That is your profit margin”.[41] Clearly, there were discussions about what level of profits could be achievable.
[39]T230
[40]T301
[41]T230
108 I accept there were a number of discussions between the parties as to how much profit El Pharaohs could generate if it were to obtain a RTO. The fact that it was subject to obtaining an RTO is confirmed by Mailmail’s evidence set out above where he talks of “when she was training organised” and “under the scope.” The discussions about potential profits and the investment centred on the acquisition of a RTO which was to be Skills initially. In that context, the figures bandied around may well have been an expression of opinion by Atar and, without more, were not necessarily misleading or deceptive. The mere fact that an opinion or promise does not eventuate does not mean it is misleading.[42]
[42]Campbell v Backoffice Investments Pty Ltd [2009] HCA 25, French CJ at [32]
109 But ultimately, I am not actually persuaded that Atar told Mailmail he would receive $10,000 to $15,000 per month if he invested in her business. I consider it inherently unlikely she would have said such a thing given her evidence about how her business operated. I reject Mailmail’s evidence on this issue. I form this view in part because I consider Mailmail to have been remarkably careless in protecting his own interests and generally confused about how the El Pharaohs business operated. As the case law shows, s18 is not designed to protect extremely stupid or gullible people.[43] I find this representation was not proved.
[43]See Miller’s Australian Competition and Consumer Law Annotated, Thomson Reuters, 2018 ed at [ACL 18.320 and 340]
(e) It received between $8,000 and $12,000 per student enrolment each year
110 Mailmail’s evidence is that he was told this by Atar at the meeting in early June 2015: namely, that she earns $8,000 to $12,000 per student. He confirmed this in cross-examination, that he was told El Pharaohs received that amount per student each year completing the course. He denied in cross-examination when put to him that Ms Atar had said that the government funding was between $8,000 and $10,000 but that she only got 60 per cent of that. He disputed she had said this to him.
111 Atar in her evidence said she did not agree with the enrolment amount each year. She said “I would have told him exactly as explained earlier, for every childhood per student, enrol the student, they get a subsidy of $10,000. So I don’t know what that means per year.”[44]
[44]T229
112 In the context of the discussions, I accept Atar told Mailmail that El Pharaohs received 60 per cent of between $8,000 to $10,000 per student but not that she said per year. I also accept she explained that expenses would be deducted from these sums before arriving at a net profit. I am not persuaded on the evidence that this representation was made in the terms pleaded. Again, I have taken the view that Mailmail was generally confused about what Atar told him about her business but his confusion does not prove she misled or deceived him. I find this representation is not proved as a matter of fact.
(f) It was a licensed training provider
113 Mailmail said that at the meeting on 15 April, Atar took him through the training centre where she provided training to students that want to hold a childcare certificate or working with children certificate. At the meeting in early June, she told him if she was able to operate a RTO, she would be entitled to 100 per cent of government subsidies. She told him that she did not have a licence at that time. Atar’s evidence is that in the second meeting she told Mailmail that she runs a training organisation that works with RTOs to deliver training to students and that she talked about current classes and classes she had run in the past. She did not agree with Mailmail’s assertion that she told him El Pharaohs was a licensed training provider.
114 In regard to the somewhat equivocal evidence given by Mailmail in evidence in chief, he does not actually assert Atar told him that she was a licensed training provider. In cross-examination however, he specifically agreed Atar never told him that El Pharaohs was a licensed training provider.[45] Consequently, this representation is not made out.
(g) It was in the final stage of negotiating the acquisition by El Pharaohs of a Queensland-based registered training organisation known as Skills International
[45]T140
115 This allegation is admitted by Atar save that she said nothing was final. It is clear from the evidence led that El Pharaohs was in advanced negotiations with Skills. This is evidenced by the documents produced as Exhibits P5 and P6. This showed that Atar had been negotiating with the owner of Skills. In an email dated 19 July 2105 to Ragab, Atar said to the solicitor: “Skills International which is the company I am buying” and attached a draft sale agreement. The purchase price in clause 3 of the draft sale agreement was in the sum of $97,000, including GST. Atar gave evidence that she had only just started talking to the director of SI when the agreement with Mailmail was signed.[46] [47] She also said that she had initial discussions with the owner of Skills, “no finals”.[48] I do not accept Atar’s evidence on this point. One of the few documents in evidence in this case, namely the Agreement, contradicts Atar’s testimony. Recital C of the Agreement states that the vendor was “into the final stage of buying a new company otherwise known as Skills International Pty Ltd.” It is clear that negotiations were well advanced with Skills, and accordingly I find this representation is proved.
[46]T230, T217
[47]T219, L10
[48]T217
116 In paragraph 14 of the amended statement of claim it is pleaded this representation was misleading or deceptive because Atar was not in the final stages of negotiating the acquisition of Skills International. But having found on the evidence that the negotiations were at a final stage, this representation was not misleading or deceptive as it was true. The fact that the purchase of Skills ultimately did not proceed does not mean the representation made was untrue at the time. Therefore, although this representation was proved, it was not misleading and deceptive.
(h) It would be able to claim 100 per cent government funding instead of the existing 60 per cent government funding after acquiring Skills International
117 Mailmail’s evidence was that Atar told him she would be entitled to 100 per cent of government subsidies if she were to operate a licensed training organisation. In cross-examination, Mailmail said that Atar told him that El Pharaohs received 60 per cent government funding and if she did obtain an RTO licence, she would be entitled to 100 per cent of subsidies. Again, he also confirmed in cross-examination that if she obtained an RTO, the funding would increase to 100 per cent.
118 This evidence did not appear to be disputed by Atar who said that provided there were approved contracts with the government, then yes, Skills could claim 100 per cent government funding. Atar agreed in cross-examination she told Mailmail during his visit that she was receiving government subsidies at 60 per cent but she would receive 100 per cent of government subsidies if she had a licensed RTO. She also agreed she told him there was great potential for El Pharaohs to expand.[49] Consequently, it seems this representation was made, although, for similar reasons as to the preceding representation, the representation was not actually misleading or deceptive as El Pharaohs would have been able to claim 100 per cent government funding if it acquired Skills.
[49]T299
119 Atar was the sole director of El Pharaohs and dealt with Mailmail directly when they were negotiating. Had I found any misleading and deceptive conduct, she would have been a person involved in the contravention. That being so, Mailmail could have sought to recover damages from her under s236.
120 A party that is misled suffers no prejudice or disadvantage unless it is shown the party could have acted in some other way (or refrained from acting in some way) which would have been of greater benefit or less detriment to the party than the course adopted.[50] For example, a misled party will suffer loss if a chose in action purchased is worth less than the price paid. The measure of loss will be the difference between the price paid and price which should have been paid. There has been no argument put in this case that Mailmail paid too much for his share in the El Pharaohs business and should recover the difference between what the business was actually worth compared with the amount he paid. Rather, the claim made is more of a “no transaction” case; namely, that Mailmail would not have invested save for the representations made, although he did not give any express evidence to that effect.
[50]Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at [48]
121 In order to prove his claim for misleading and deceptive conduct, Mailmail has to establish reliance. He gave evidence about the various matters he claimed Atar told him and then said that he decided to invest. He gave no direct evidence that he relied upon any of the representations when deciding to enter into the Agreement. That being so, the issue is whether an inference of reliance can be drawn that he did rely upon the representations made when deciding to invest. As the High Court said in Australian Competition and Consumer Commission v TPG Internet Pty Ltd:[51]
“It has long been recognised that, where a representation is made in terms apt to create a particular mental impression in the representee, and it is intended to do so, it may properly be inferred that it has had that effect. Such an inference may be drawn more readily where the business of the representor is to make such representations and where the representor’s business benefits from creating such an impression.”
[51](2013) 250 CLR 640, [55]
122 I am satisfied on the evidence that reliance could have been inferred in the circumstances of this case and that Mailmail decided to invest, in part, relying upon the representations made to him by Atar, had they been proved to be misleading or deceptive.
123 It was not argued by Atar’s counsel or indeed pleaded that Mailmail had been careless such that his lack of care broke the causal connection between the misleading and deceptive conduct, reliance and loss. Nor was there any claim put that there should be a reduction of any amount recoverable under s137B of the Competition and Consumer Act 2010 due to the failure of Mailmail to take reasonable care for his own interests. It is somewhat remarkable that an experienced builder well versed in commercial transactions decided to part with $200,000 without seeking any independent accounting or legal advice and did not undertake any due diligence into the nature of the business he was buying.
124 In BHP Billiton Olympic Dam Corporation Pty Ltd v SteulerServices GmbH & Co KG,[52] the Victorian Court of Appeal set out a summary of the applicable legal principles relating to causation and loss under s82 of the Trade Practices Act 1974:
[52][2014] VSCA 338
“[540] There are several relevant principles governing the issues of causation and loss under s 82 of the TPA that are important to keep in mind:
(1) A plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage it has suffered in consequence of its altering its position under the inducement of the misrepresentations made by the defendant;
(2) Under s 82(1) of the TPA, as under the common law, a plaintiff can only recover compensation for actual loss or damage incurred, as distinct from potential or likely damage;
(3) In determining whether a plaintiff has suffered loss or damage under s 82(1), it is usually necessary to compare the position that the plaintiff is in having been misled, with the position it would have been in but for the misrepresentation; by undertaking this comparison a court can determine whether the plaintiff is worse off as a result of relying upon the misrepresentation made by a defendant;
(4) Section 82 requires identification of a causal link between loss or damage and conduct done in contravention of the Act; the question of causation is relative to the purpose of s 82, applied to the circumstances of a particular case;
(5) Determining the question of causation will often involve considering how much worse off the plaintiff is as a result of entering into the transaction which the representation induced it to enter than it would have been had the transaction not taken place. This entitles the plaintiff to all the consequential loss directly flowing from its reliance on the representation, at least if the loss is foreseeable;
(6) Analysing the question of causation only by reference to what is, in essence, a ‘but for’ test has been found wanting in other contexts and it should not be treated as an exclusive test of causation under s 82 of the TPA either; especially where there is more than one cause of the loss;
(7) It is relevant to ask what the plaintiff would have done had it not relied on the representation;
(8) As the judge recognised here, there are cases where if the contravening conduct had not occurred which misled the plaintiff, the plaintiff would not have embarked upon the project or transaction at all (the ‘no transaction cases’), and there are cases where if the plaintiff had not been misled it would still have embarked upon the project or transaction, but would have done so by entering into an alternative arrangement with the same party or a different party (‘alternative transaction cases’);
(9) A party that is misled suffers no prejudice or disadvantage unless it is shown that that party could have acted in some other way (or refrained from acting in some way) which would have been of greater benefit or less detriment to it than the course in fact adopted;
(10) A court should not engage in speculation about multiple possibilities of past hypotheticals to which no specific evidence was directed;
(11) Once the causal connection is established, there is nothing in s 82 of the TPA which suggests that the amount that may be recovered under that section should be limited by drawing some analogy with the law of contract, tort or equitable remedies;
(12) If the defendant’s breach has ‘materially contributed’ to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage;
(13) In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional.”
125 Mailmail has to satisfy the court that he suffered loss and damage as a result of any misleading conduct. It is relevant to ask what he would have done had he not relied upon the representations. Mailmail needs to show he could have acted in some other way or refrained from acting in some way which would have been of greater benefit or less detriment to him than the course he took. There was simply no evidence adduced from Mailmail saying what he might have done had he not been misled. One can readily assume that if he had been asked that question, he would have said that he would not have entered into the agreement and parted with his money. But the court cannot proceed on speculation and, in the absence of such evidence, Mailmail failed to establish any loss or damage.
126 Given the loss claimed is the full amount invested, the claim bears the hallmark of a “no transaction” case. Consequently, Mailmail has not proved he suffered any loss because he did not prove what he would have done had he not been misled.[53] There was simply no evidence given by Mailmail that had he known the true position, he would not have invested the sum of $200,000.
[53]See Protec Pacific Pty Ltd v Steuler Services [2014] VSCA 338, [590]–[591]
127 In these circumstances, Mailmail has not established he sustained any loss flowing from any alleged misleading or deceptive conduct by the defendants. For all these reasons, the claim under s18 of the ACL was not made out.
Conclusion
128 In summary, Mailmail has succeeded in his claim for breach of contractual warranty and is entitled to damages in the sum of $100,000. The defence of promissory estoppel relied upon by Atar to defeat the contract claim failed. Mailmail did not establish that El Pharaohs and/or Atar engaged in conduct that was misleading or deceptive or likely to mislead and deceive in contravention of s18 of the ACL which caused him to suffer loss and damage.
129 Accordingly, there will be judgment for Mailmail in the sum of $100,000 against Atar, together with interest to be assessed from the date of the writ. El Pharaohs’ counterclaim, which was not pursued as a consequence of the company’s deregistration, will be dismissed. Subject to hearing from the parties, I propose ordering Atar pay Mailmail’s costs of the proceeding, including any reserved costs, on a standard basis to be taxed in default of agreement.
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Certificate
I certify that these 38 pages are a true copy of the Reasons for Judgment of Her Honour Judge A Ryan delivered on 16 July 2018.
Dated: 16 July 2018
Associate to Her Honour Judge A Ryan
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