Metz Holdings Pty Ltd v Simmac Pty Ltd (No 2) - [2011] FCA 981

FEDERAL COURT OF AUSTRALIA
Metz Holdings Pty Ltd v Simmac Pty Ltd (No 2) [2011] FCA 981

Citation: Metz Holdings Pty Ltd v Simmac Pty Ltd (No 2) [2011] FCA 981

Parties: METZ HOLDINGS PTY LTD (ACN 059 264 210) AS TRUSTEE FOR THE ZULU TRUST AND GROUP M PTY LTD (ACN 118 506 148) AS TRUSTEE FOR THE ROUBAIX TRUST, MERVIN METZ and FARREL METZ v SIMMAC PTY LTD (ACN 062 327 397), PAUL CAMPBELL SIM, LINDA MCBRIERTY and LINDA MCBRIERTY AND EDWARD HUGH JENNINGS AS TRUSTEES FOR THE LINDA MCBRIERTY SUPERANNUATION FUND

File number: WAD 114 of 2009

Judge: BARKER J

Date of judgment: 25 August 2011

Catchwords:
TRADE PRACTICES - misleading and deceptive conduct - where applicants allege respondents made misleading or deceptive representations relied on by applicants in entering agreement for sale of a business

TRADE PRACTICES – s 51AC of the Trade Practices Act 1974 (Cth) - whether conduct of second respondent unconscionable - whether conduct of second respondent engaged in on behalf of first respondent

REMEDIES - where rescission of sale agreement, lease agreement and employment agreement sought by applicants - whether damages would be an inadequate remedy - rescission appropriate in the circumstances

Legislation: Trade Practices Act 1974 (Cth) s 51A, s 51AC, s 52, s 82, s 87
Fair Trading Act 1987 (WA) s 9, s 10

Cases cited: Akron Securities Ltd v Iliffe & Ors (1997) 143 ALR 457
Australian Competition & Consumer Commission v Allphones Retail Pty Ltd (No 2) [2009] FCA 17; (2009) 253 ALR 324
Australian Competition & Consumer Commission v C G Berbatis Holdings Pty Ltd [2000] FCA 2; (2000) 169 ALR 324
Australian Competition & Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276
BB Australia Pty Ltd v Karioi Pty Ltd [2010] NSWCA 347; (2010) 278 ALR 105
Briginshaw v Briginshaw (1938) 60 CLR 336
Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Downey & Anor v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199
Fubilan Catering Services Limited v Compass Group (Australia) Pty Ltd [2007] FCA 1205
Fubilan Catering Services Limited (Incorporated in PNG) v Compass Group (Australia) Pty Ltd [2008] FCAFC 53
Gardner Corp Pty Ltd v Zed Bears Pty Ltd [2003] WASC 13
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
Gray v Sirtex Medical Ltd [2011] FCAFC 40; (2011) 193 FCR 1
Henville v Walker [2001] HCA 52; (2001) 206 CLR 459
Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133
Hurley v McDonalds Australia Limited [1999] FCA 465
Hurley v McDonalds Australia Limited [1999] FCA 1728; (2000) ATPR 41-741
Lewarne v Momentum Productions Pty Ltd [2007] FCA 1136
McGrath v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2; (2008) 165 FCR 230
McWilliams Wines Pty Ltd v L S Booth Wine Transport Pty Ltd (1992) 25 NSWLR 723
Metz Holdings Pty Ltd v Simmac Pty Ltd (No 1) [2011] FCA 263
Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; (1992) 67 ALJR 170

Date of hearing: 21-25 March 2011, 4-6 May 2011, 19 May 2011

Place: Perth

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 895

Counsel for the Applicants: Mr P Mendelow

Solicitor for the Applicants: Karp Steedman Ross-Adjie Lawyers

Counsel for the Respondents: Mr PG McGowan

Solicitor for the Respondents: Metaxas & Hager

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAD 114 of 2009

BETWEEN:
METZ HOLDINGS PTY LTD (ACN 059 264 210) AS TRUSTEE FOR THE ZULU TRUST AND GROUP M PTY LTD (ACN 118 506 148) AS TRUSTEE FOR THE ROUBAIX TRUST
First applicants

MERVIN METZ
Second Applicant

FARREL METZ
Third Applicant

AND:
SIMMAC PTY LTD (ACN 062 327 397)
First Respondent

PAUL CAMPBELL SIM
Second Respondent

LINDA MCBRIERTY
Third Respondent

LINDA MCBRIERTY AND EDWARD HUGH JENNINGS AS TRUSTEES FOR THE LINDA MCBRIERTY SUPERANNUATION FUND
Fourth Respondent

JUDGE:

BARKER J

DATE OF ORDER:

25 AUGUST 2011

WHERE MADE:

PERTH

THE COURT ORDERS THAT:
1.The applicants bring forward a minute of proposed final Orders designed to carry forward the Orders proposed.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAD 114 of 2009

BETWEEN:
METZ HOLDINGS PTY LTD (ACN 059 264 210) AS TRUSTEE FOR THE ZULU TRUST AND GROUP M PTY LTD (ACN 118 506 148) AS TRUSTEE FOR THE ROUBAIX TRUST
First applicants

MERVIN METZ
Second Applicant

FARREL METZ
Third Applicant

AND:
SIMMAC PTY LTD (ACN 062 327 397)
First Respondent

PAUL CAMPBELL SIM
Second Respondent

LINDA MCBRIERTY
Third Respondent

LINDA MCBRIERTY AND EDWARD HUGH JENNINGS AS TRUSTEES FOR THE LINDA MCBRIERTY SUPERANNUATION FUND
Fourth Respondent

JUDGE:

BARKER J

DATE:

25 AUGUST 2011

PLACE:

PERTH

REASONS FOR JUDGMENT

Brief overview........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [1]

Correspondence before action........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [37]

Outline of applicants’ case........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [46]

Respondents’ positions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [51]

Dealings up to settlement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [58]

Events following settlement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [124]

The events of 20 April 2009........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [192]

Representation pleaded in [15(a)] of statement of claim – two year employment period........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [238]

Representation pleaded in [15(b)] statement of claim – training........ ........ ........ ........ .... [293]

Representation pleaded in [15(c)] of statement of claim – introductions........ ........ ........ [323]

Representation pleaded in [15(d)] of statement of claim – restraint of trade........ ........ .. [348]

Representations pleaded in [16] and [16A] of statement of claim – gross profit........ .... [360]

Representation pleaded in [17(a)] of statement of claim –relationship with suppliers... [404]

Representation pleaded in [17(b)-(e)] of statement of claim – decreases in turnover not affecting profitability........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [417]

Representation pleaded in [17(f)] of statement of claim – working capital........ ........ .... [450]

Representation pleaded in [17(g)] of statement of claim – stock easily saleable........ .... [472]

Representation pleaded in [17(h)] of statement of claim –relationship with customers. [500]

Representations pleaded in [17(i)] and [17(ia)] of statement of claim – projects on hand........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [520]

Representation pleaded in [17(j)] of statement of claim – future projects........ ........ ...... [584]

Representation pleaded in [17(k)] of statement of claim – assistance in running business........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [589]

Representation pleaded in [17(l)] of statement of claim – exclusive supplier........ ........ [594]

Representation pleaded in [17(m)] of statement of claim –litigation........ ........ ........ ...... [608]

Representation pleaded in [23A] of statement of claim – disputed claims/court proceedings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [617]

Collateral oral warranties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [630]

Representation pleaded in [21B] of statement of claim –product substitution........ ........ [642]

Matters pleaded in [24] and [24A] of statement of claim – employment agreement...... [708]

Matters pleaded in [27]-[39] of statement of claim – repudiation of employment agreement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [732]

Matters pleaded in [39F], [39G], [39M] and [39N] of statement of claim – breach of employment agreement on Howard Solomon project........ ........ ........ ........ ........ ........ ..... [745]

Matter pleaded in [63D] of statement of claim – failure to disclose product substitution practice........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [752]

Unconscionable Conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [759]

Matters pleaded in [71]-[72] of statement of claim – claim for return of erroneous payments........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [804]

Matters the subject of [67]-[70] of statement of claim - Westwide fittings claim and related cross‑claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [812]

Other cross-claims........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [822]

Remedies........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [829]

Order as proposed by Court........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [891]

Immediate order........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [895]
BRIEF OVERVIEW

On 29 April 2008, the first applicant companies by their directors, respectively the second applicant (Mervin Metz) and the third applicant (Farrel Metz), signed a document described as agreement for sale of the business (as a going concern) (sale agreement) by which they offered, as “Buyer”, to purchase the goodwill of the wholesale lighting business known as Illumination Services WA, including the business or trade name and plant, furniture, fixtures, fittings, chattels, stock in trade and other assets described in the schedule to the agreement, for a gross purchase price of $1.25 million allocated as follows:
·Goodwill - $900,000
·Fixtures as per annexure - $150,000
·Stock in trade (to be adjusted as provided in cl 5) - $200,000.
The manner of payment of the purchase price was specified by the sale agreement to be a deposit of $50,000 to be paid within three days of acceptance with the balance to be paid in accordance with cl 7 of Annexure A of the agreement.
Possession on completion of the counting of stock was to be given on 1 July 2008.
The owner of the business, the first respondent, accepted the offer, as “Seller”, on 7 May 2008 when the two directors of the company, the second respondent (Mr Sim) and the third respondent (Ms McBrierty), signed the sale agreement for the company.
Annexure A to the sale agreement provided that the agreement was subject to and conditional upon seven conditions which may briefly be described, so far as their effect is concerned, as follows:
(1)Due diligence over a five week period at the end of which the Buyer was entitled in its absolute discretion to give written notice of its intention to terminate the agreement if dissatisfied with the report of their accountant in respect of the financial information provided by the Seller.
(2)The Buyer being satisfied as to the terms and conditions of new property leases to be supplied by the Seller within 14 days of acceptance, together with a first right of refusal to purchase the property located at unit 3, 9 King Edward Road, Osborne Park, being the premises at which the business was carried on.
(3)In the event that stock in trade exceeds $200,000, the Seller shall raise an invoice in favour of the Buyer for stock in excess of that sum and an invoice shall provide that the Buyer has 60 days from the date of settlement upon which to pay for any excess stock over that sum, which would not attract interest unless not paid in that period.
(4)The Seller warranted that it was not in possession of any “knowledge or information” which –
(4.1)if unrevealed could, at a later date, prove detrimental to or adversely affect the normal trading of the subject business, or
(4.2)if revealed now could cause the Buyer to substantially modify their terms of this offer or withdraw this offer.
(5)The Buyer and Seller would obtain independent legal and accounting advice.
(6)The Buyer entering into an employment agreement with Mr Paul Sim under reasonable terms and conditions acceptable to both parties. Either party in their absolute discretion could give written notice to terminate the agreement within 14 days of receipt of the employment agreement if they or their solicitor were dissatisfied with the terms and conditions and, in that event, the sale agreement would be at an end and the Seller would return all monies paid pursuant to the agreement to the Buyer.
(7)The purchase price was to be paid as follows:
(7.1)Deposit paid: $50,000.
(7.2)Amount to be paid at settlement: $950,000.
(7.3)The sum of $125,000, “Sellers Finance”, shall be paid on 1 July 2009.
(7.4)The sum of $125,000, “Sellers Finance”, shall be paid on 1 July 2010.
The expression “Sellers Finance” was not defined in the sale agreement but in context simply meant that $250,000 of the purchase price would not be payable prior to possession and would be paid in the manner provided for in condition 7 of Annexure A.
The first respondent had earlier engaged Goodwin Mitchell O’Hehir (WA) Pty Ltd (GMO), business brokers, in about March 2008, to offer the business for sale. Ms McBrierty was instrumental in causing this to happen. She and Mr Sim had effectively been partners in the business, she as financial administrator and he as the salesperson and driving force, as well as in a personal relationship. When the personal relationship ended, Ms McBrierty and Mr Sim agreed to sell the business.
Ms McBrierty obtained a valuation of the business from an accountant, Mr Todd, and then briefed Gary Murphy, an employee of GMO, to seek buyers.
Mr Murphy prepared two brochures, which were similar and which identified the nature of the business and key aspects of its financial performance. The second brochure included financial statements as to the end of the financial year ending 30 June 2007. It represented the last gross profit was 36.8% on a turnover of about $2.7 million.
James Goodwin, a director of GMO, soon became involved in handling the negotiations that ensued between the Metzes and the first respondent, he having been approached by Mervin and Farrel Metz, with whom he had some dealings some years earlier.
Mervin Metz, the father of Farrel Metz, had been in a range of small businesses in the past, both in South Africa before immigrating to Australia in about 1996, and then in Australia. Most recently, Mr Metz had operated a business in Western Australia selling school uniforms. That business had been sold in 2003 following which Mervin Metz had effectively retired from business.
Farrel Metz had been engaged in the earlier school uniform business as an office administrator. Following the sale of that business he travelled overseas for an extended period before returning to Perth in about 2004.
In about 2008, the Metzes, Mervin and Farrel, began considering the purchase of another business. That is how they came to approach Mr Goodwin at GMO in about March 2008.
GMO provided the Metzes with the two brochures prepared by Mr Murphy. On 17 March 2008 and then again on 18 April 2008, the Metzes, with Mr Goodwin, met with Mr Sim at the business’ premises. In the course of these meetings Mr Sim made representations to the business. Questions of gross profit and Mr Sim remaining as an employee of the business for two years if the applicants were to purchase the business were among those discussed. However, proceeding just what representations were made and their precise terms is in issue in this proceeding.
On 29 April 2008, the Metzes, on behalf of the first applicants, signed the offer to purchase the business.
On 7 May 2008, the first respondent, by its directors Mr Sim and Ms McBrierty, accepted that offer.
As noted above, the sale agreement was subject to a number of precedent conditions, including a due diligence condition and a condition that Mr Sim would complete an agreement to be an employee of the business following settlement of the sale.
During the due diligence period, following the acceptance of the offer by the first respondent on 7 May 2008, the Metzes, principally through Farrel Metz took advice from their accountants, McGillivray Partners, and requested information of the first respondent, as provided for by condition 1 of Annexure A of the sale agreement. In particular, a list of projects on hand was supplied by Mr Sim. Just what this represented and whether the applicants relied on it is in issue.
Following due diligence the Metzes proceeded to settlement of the sale.
An employment agreement in the form of a letter from the first applicants to Mr Sim was drafted by the solicitors for the first applicant and presented to Mr Sim for consideration and he signed his acceptance of its terms and conditions on 24 June 2008. By it he agreed to be employed for two years, on the terms set out. By cl 6, Mr Sim acknowledged, amongst other things, he was to be a “key employee for at least two years”. Whether this clause created representations is in issue.
A lease of the business premises was also taken by the first applicants from the fourth respondents.
Settlement was then effected and the first applicants took possession of the business on 4 July 2008 (not 1 July 2008), with Mr Sim on board as their employee.
Following possession things seem relatively quickly to have become unstuck between the parties, particularly between the Metzes, on the one hand, and Mr Sim, on the other. By then Ms McBrierty had left the scene.
The broad picture created by the evidence is that after settlement, the Metzes took up employment in the business, they being the only persons additional to Mr Sim and his “old” employee, Ms Lauren Kuster, then working in the business. While some training sessions were held periodically for the Metzes and Ms Kuster, Mr Sim committed himself to advancing a number of projects on hand that he had mentioned on a list he had provided to the Metzes during due diligence.

From Mr Sim’s point of view, it was business as usual. From the Metzes’ they were not getting to meet many customers or suppliers as they would have liked. They did, however, process and deliver goods as directed by Mr Sim.
Farrel Metz set about organising the office and endeavouring to computerise the accounts and filing systems, which he considered to be completely lacking. In late August 2008, Ms Helen Friedle was taken on as the office administrator to assist in this regard.
A number of issues began to develop early on which, before long, contributed to cashflow difficulties for the business. Whereas the brochures and sale agreement stated stock in hand was valued at approximately $200,000, when the stocktake was taken in accordance with the terms of the sale agreement, the value was found to be just over $346,000. Under the terms of the sale agreement, $200,000 was paid at settlement but held in trust pending the stocktake valuation. Once the stocktake was conducted, the $200,000 was paid to the Seller. The balance of about $146,000 then became payable within 60 days. Mr Sim and Ms McBrierty indicated, however, they would accept $115,000 if paid by 15 September 2008. Following negotiations, the parties agreed in October 2008 to the payment of that amount by instalments ending on 4 December 2008.
Then, in about mid‑August 2008, Mr Sim advised Farrel Metz that it was necessary to pay about $90,000 (USD66,000) to secure the supply of additional fittings from China for a current project.
The applicants plainly were not expecting these additional financial outlays. Nonetheless, they met them.
While those events were developing, Mr Sim was proving to be an exceptionally difficult person for the Metzes to deal with. He quickly evinced a desire not to be bothered in his single‑minded advancement of the projects he had on hand. Mr Sim also formed the view that the Metzes were slow learners when it came to the ways of their new business. He began parrying their requests for advice and assistance. In particular, he soon became very critical of Farrel Metz because, in his opinion, he spent too much time in the office upstairs attending to computers and not enough time out of the office securing new business.
By September and into October 2008, it was quite clear that Mr Sim resented any attempts by the Metzes or the new office administrator, Helen Friedle, to obtain information about the projects he was handling or any apparent uninvited intrusions into the realm of his projects. Mr Sim became increasingly rude to the Metzes, difficult with Ms Friedle, and dismissive of and rude about the Metzes. Before too long, Mr Sim fell into the habit of writing notes to Farrel Metz, in his trademark uppercase printing, telling him, among other things, to “butt out” of “his” projects.
The position plainly became intolerable from the Metzes point of view, and despite their efforts to change his ways, Mr Sim chose not to do so. He had apparently found his way of doing things successful for many years in running the business.
In November 2008, Mr Sim, was concerned the business would fail under the Metzes’ control. He demanded bank guarantees from the Metzes for the balance of $250,000 due to the first respondent under the sale agreement, failing which he said he would “walk” – that is to say, would end his employment. The demand was rejected by the Metzes. The Metzes instead encouraged Mr Sim yet again to cooperate with them and Ms Friedle.
Following an email from Farrel Metz to Mr Sim on 17 April 2009, and a response from Mr Sim on 19 April 2009, a series of exchanges occurred upstairs and downstairs in the premises of the business on 20 April 2009 that involved Mr Sim and Farrel Metz mostly, but Mervin Metz as well. In the end, Mr Sim departed the business premises just over nine months into a two year employment agreement. It is in issue in this proceeding whether Mr Sim was fired by the Metzes, as he claims he was, or chose to leave in breach of his employment agreement, as the applicants claim.
A key related issue is whether, as claimed by the applicants, but denied by Mr Sim, Mr Sim ever intended remaining an employee of the business for two years when he represented he would during the negotiations.
In May 2009, within a matter of weeks of leaving the business on 20 April 2009, Mr Sim commenced working as an employee with another lighting business, Lanark Trading Pty Ltd. It is in issue whether, in so doing, Mr Sim breached the restraint of trade condition of his employment agreement.
CORRESPONDENCE BEFORE ACTION
Following Mr Sim’s departure from the business on 20 April 2009, the applicants instructed their solicitors and took their advice in relation to their dealings with the first and second respondents. By letter dated 6 May 2009, their solicitors, Karp Steedman Ross‑Adjie wrote to first and second respondents advising that they acted for the first applicants and were instructed that:
(1)Representations concerning training and introductions that were made during the negotiations for the purchase of the business were made without any reasonable basis and that their clients had suffered loss and damage.
(2)During the course of his employment Mr Sim had repeatedly and consistently breached the terms of the employment contract by his conduct, which was itemised, noting that he had not attended the business premises since 20 April 2009, and that his conduct constituted a fundamental breach, or alternatively a repudiation of his obligations under the employment contract, which their clients accepted and they terminated the employment agreement.
(3)Reminding Mr Sim of the restraint clause in cl 12 of the employment agreement and advising that their clients would take whatever action was necessary in the event of breach.
(4)Requiring the payment of monies mistakenly paid to the first respondent by three customers that were due to their clients.
(5)Requiring the payment of $11,929.72 (being $14,751.22 less the amount of $2,821.50) that had been paid on behalf of the first respondent and, which, by agreement of the first respondent through Mr Sim, the first respondent had agreed to reimburse the first applicants once paid.
By email to the first applicants’ solicitors, Mr Sim, on 6 May 2009, rejected the allegations made against him and further alleged that monies were due and owing to him, alleging that the Metzes had verbally told him that they would not be paying the balance due under the sale agreement and that he had asked his lawyer to recover the monies. Mr Sim alleged he had been “sacked”.
By letter dated 7 May 2009, the solicitors for the first applicants wrote to Mr Sim at his postal address indicating that, as he was engaging lawyers, it was ethically appropriate for them to deal directly with the lawyers and requested him to provide the lawyers’ contact details. Mr Sim responded immediately by email on 7 May 2009 advising the solicitors that he required a response to his letter before he could pass it on to his lawyers.
By letter dated 18 May 2009 to the first respondent and Mr Sim, the solicitors for the first applicants advised Mr Sim that their clients understood he was working for Lanark, a direct competitor of the business and required him forthwith to cease such work or their clients might, without further notice, institute court proceedings. Mr Sim by email on the same day, 18 May 2009, responded to the solicitors rejecting the allegations in a general sense in a letter saying he had taken legal advice and his lawyer’s advice was “completely different to yours”.
In another email soon after that, Mr Sim demanded a response to his email of 6 May 2009 and follow up email of 7 May 2009, and again demanded bank guarantees in “place for two outstanding payments, 1^st July 2009 and final payment 30^th June 2010”.
By letter dated 20 May 2009, the first applicants’ solicitors wrote to the first respondent and Mr Sim, generally responding to Mr Sim’s earlier letters repeating the restraint of trade allegation and requesting advice as to the identity and contact details of his lawyer. Eventually, by letter dated 26 June 2009, the solicitors for the first applicants wrote to Staffa Lawyers noting that they assumed they were acting for both the first and second respondents and requesting advice if that were not the case. By the letter the solicitors:
(1)Referred to the earlier alleged representations made during a negotiating period.
(2)Set out additional representations concerning the Targetti line of fittings and difficulties at home representations, working capital representations, saleability of stock representations, representations concerning relationships with suppliers and customers, representations about projects on hand and exclusive supplier and distributor representations.
(3)Stated that each of the representations was misleading or deceptive within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (TP Act) or s 10 of the Fair Trading Act (WA) (FT Act).
(4)Stated that by Mr Sim leaving the business on 20 April 2009, he engaged in a repudiatory breach of his employment agreement.
(5)Alleged unconscionable conduct within the meaning of s 51AC of the TP Act.
(6)Advised that in the circumstances their client rescinded the sale agreement and that they intended to apply to the Court as soon as possible for appropriate relief and that, in the interim, and until their clients had been granted appropriate relief by the Court, “our clients shall run the Business as caretakers”.
On 8 July 2009, these proceedings were commenced by the applicants against the respondents seeking the foreshadowed remedies.
As they developed, the proceedings were amended at various stages, but a significant amendment to the claim in 2010 raised an allegation which was additional to those made in the correspondence before action. The applicants then further alleged that the first respondent and Mr Sim had engaged in a practice the applicants called “product substitution”, that is to say, underquoting on projects to get the work, and then supplying products different from and less costly to those specified by customers. The applicants allege that this practice enabled the first respondent, in the past, to quote competitively and to achieve the financial performance represented during negotiations – of 36.8% on turnover in the 2007 financial year – but failed to disclose it as they should have during negotiations and before settlement.
The first and second respondents have consistently denied the key allegations made against them and also deny the product substitution allegation.
OUTLINE OF APPLICANTS’ CASE
The applicants’ case is principally advanced on the basis that pleaded conduct of the first respondent, principally by Mr Sim, contravened the fair trading provisions of the then operative Trade Practices Act 1974 (Cth) (TP Act) and the Fair Trading Act 1987 (WA) (FT Act) in that representations made in the course of negotiations and were misleading or deceptive contrary to s 52 of the TP Act and/or s 10 of the FT Act, and that other representations made, including during due diligence, prior to settlement, were also misleading and deceptive; and that some of the representations made during negotiations constituted collateral warranties to the sale agreement.
In summary, the applicants say that:
(1) during negotiations the respondents made representations to them concerning:
·The turnover and gross profit of the business.
·The relationship of Mr Sim with customers and suppliers of the business.
·The saleability of stock in hand.
·Mr Sim’s preparedness to continue to work for the business following settlement and his preparedness to teach the Metzes the business.
·Mr Sim’s willingness to assist the Metzes develop and maintain good working relationships with suppliers and customers of the business.
·Mr Sim’s preparedness not to compete for a period of five years with the business.
(2)during due diligence further representations were made on behalf of the first respondent:
·As to whether the business had been involved in any disputed claims or litigation.
·Concerning projects on hand.
·That full disclosure had been made of all things material to the conduct of the business.
The applicants also claim that the conduct of Mr Sim after settlement during the period he was an employee of the first applicants, was conduct relevantly engaged in on behalf of the first respondent and which was unconscionable in terms of s 51AC of the TP Act, and by which he also repudiated the sale agreement and employment agreement.
The first applicants further claim that, in breach of the contractual warranty contained in the sale agreement to disclose material information, the first respondent failed to disclose before settlement, or any time thereafter that in the course of operating the business the first respondent, through Mr Sim, had engaged in the practice of “product substitution”.
In these circumstances the applicants say they are entitled to the following remedies:
(1)Rescission of the sale agreement, lease of the premises with the fourth respondents and the associated employment agreement with Mr Sim under the TP Act, on the basis that damages alone would be an inadequate remedy;
(2)Damages, additional to rescission, on the basis that the applicants are entitled to be fully compensated for the loss and damage they have suffered as a result of entering into the transactions with the respondents;
(3)Alternatively, if rescission is not an available remedy, damages for the loss and damage they have suffered as a result of the contraventions of the TP Act or the FT Act.
RESPONDENTS’ POSITIONS
Prior to trial the third respondent, Ms McBrierty and the fourth respondents for the Linda McBrierty Superannuation Fund settled with the applicants on the basis that the third and fourth respondents would abide the decision of the Court if rescission were to be ordered.
However, at trial the first respondent and Mr Sim strongly defended the cases brought against them. Their position, through Mr Sim, was that most representations pleaded against them, express or implied are denied, and that they deny, in any event, that any relevant conduct on their part was misleading or deceptive under the fair trading provisions of the TP Act or the FT Act. They also deny the existence of pleaded collateral warranties or breaches of the sale agreement or the employment agreement. They deny they acted unconscionably or repudiated any of the agreements.
These respondents say that, whatever findings the Court might make about the representations alleged to have been made by them or on their behalf, the conduct of the Metzes at all material times, both during negotiations, during due diligence and after settlement up until the time Mr Sim departed the business on 20 April 2009, indicates that at no time did the Metzes rely on the representations the applicants have pleaded.
The respondents also strongly deny the allegation of product substitution.
The first respondent cross‑claims that the first applicants repudiated the sale agreement and that the sum of $250,000 is now due and payable under the sale agreement, together with some other, small sums.
Mr Sim also cross-claims in respect of some minor amounts he says are due under the employment agreement.
These respondents seek to encapsulate their response to the applicants’ claims in the following observations:
·At all times, Mr Mervin Metz was experienced in business;
·The applicants proceeded with the purchase of the business, in effect, with their eyes wide open;
·The applicants conducted due diligence and understood the nature of the business and the financial statements provided to them and received advice from their own accountants;
·As to the list of projects on hand that was provided by Mr Sim during the course of due diligence, no further inquiries were pressed at all about that list by or on behalf of the applicants;
·As to the allegations that these respondents did not have any reasonable grounds for making representation as to future matters, and that they misrepresented present facts, they are denied;
·In essence, the sale agreement constituted a regular business dealing and that no misleading or deceptive conduct was engaged in by them at any point and that the case for unconscionable conduct is misconceived in fact and law;
·So far as the conduct of Mr Sim following the settlement is concerned, in essence he carried on the business in that period in the same way as he had been carrying it on himself for some years beforehand and that while Mervin Metz did his best, Farrel Metz was not equal to the task and in fact did not apply himself to the activity of sales, but spent all or most of his time in the office upstairs installing and operating computer systems;
·Mr Sim denies the allegation made against him that he had always planned, or had decided it was time to leave the business and leave the applicants to their own devices. He says that he was eventually “sacked” on 20 April 2009 and did not breach the employment agreement;
·That if the Metzes had really struggled to run the business following Mr Sim’s departure on 20 April 2009, they would have called as a witness, but did not, Mr Neil Catterall, a person the first applicants’ later engaged as an employee to help them run the business, to confirm what they had alleged.
·That the first applicants’ business operation was undercapitalised and, in effect, they were the authors of their own misfortune.
DEALINGS UP TO SETTLEMENT
Before turning to the pleaded representations and other causes of action, it is useful to outline the evidence leading up to settlement. This and other evidence will also be considered in determining each of the pleaded causes of action.
As noted above, Mr Murphy of GMO was initially approached by Ms McBrierty with respect to the listing of the business for sale in about March 2008, she and Mr Sim having agreed to put the business up for sale following the termination of their personal relationship.
Mr Murphy then prepared two brochures from information provided to him by Ms McBrierty. The information included a valuation of the business dated 7 December 2007, she had obtained from an accountant, RL Todd, as well as financial statements, a plant schedule and extracts from the business’ product catalogues.
Following an initial inquiry from within the lighting industry, Mr Sim indicated to Mr Murphy that he did not wish to sell the business to a person or entity in the lighting industry because he was concerned that information about the business might get out to the opposition as he felt they would only be fishing to find out what was for sale.
From about March 2008, Mr Murphy ceased to have any real involvement in the sale of the business, other than attending some meetings with Mervin and Farrel Metz when they first approached GMO, and liaising with Mr Sim and Ms McBrierty where required to do so. Instead, his colleague, Mr Goodwin, a principal in the broking business became closely involved following an approach to him from Mervin and Farrel Metz.
The Metzes were given the brochures. The first brochure provided a business précis in which the business was simply described as “Light Fittings”:
·The price was stated at $1,390,000 comprising goodwill of $1 million, plant of $190,000 and stock of $200,000.
·Sales/Turnover were described at $2,700,000 annually.
·Net Profit was stated to be $519,512 “Average 3 Years”. The profit was stated to be based on “1 Full‑Time Owner”.
·Staffing Requirements were stated to be Three Employees with wages of $2,597 with current owner involvement being one of full-time and one part-time owner.
·The trading hours were specified to be Monday to Friday, 7am – 6pm and Saturday 9am – 1pm.
·The brief overview of the business was stated as follows:
Import/Wholesaler of electrical fittings for the commercial and construction market. This niche wholesale business supplies direct to end users and contractors and has the potential to greatly broaden its market with new products and marketing. Products are serviced both within Australia and direct imports from overseas manufacturers.

The brochure indicated that the vendor was prepared to provide a restrictive covenant and ongoing assistance, in these terms:
11.RESTRICTIVE COVENANT
The Vendor agrees to a restrictive covenant for a period of five (5) years with a radius of two hundred (200) kilometres.
12.ONGOING ASSISTANCE FROM VENDOR
The Vendor is prepared to remain in the business for a period of twenty six (26) weeks on a full‑time basis to help familiarise the Purchaser with the business.
This brochure also indicated that plant and equipment was “to be advised”. There was no quantification or costing in respect of it. However, as noted above, the stock component of the purchase price was listed as $200,000, and in the section dealing with the offering terms, the $200,000 was stated to be:
Current Estimated Stock (to be valued, stocktaking fee to be shared equally between Vendor and Purchaser).
The brochure then provided a general guide to “addbacks”, which it defined as income or expenses which were personal in nature used to minimise taxation, or that were non‑recurring, and listed examples, including owner’s wages and rent.
The brochure attached financial statements including a trading summary showing an average profit after wages, including $280,000 to Mr Sim and Ms McBrierty, over three years of $519,512 “to one owner”, the trading account for the year ending 30 June 2006, and a profit and loss for July 2006 through June 2007, a detailed profit and loss statement for the year ended 30 June 2006 showing profit from ordinary activities before income tax for the year ended 30 June 2006 of $215,223, and three pages of advertising or promotional material in relation to products and suppliers.
The second brochure was in similar terms, save that the sale price of $1.38 million was changed by hand to $1.29 million. The value of plant in the second brochure was reduced to $90,000, not the $190,000 that appeared in the first brochure. A similar amendment was made in the section dealing with the offering terms, which was amended to read $1,290,000 inclusive of stock. (The evidence referred to at [78] below suggests this amendment may have been made following the meeting of 18 April).
However, while this second brochure also includes the trading summary referred above, it also includes financial statements for the year ending 30 June 2007, unlike the earlier brochure which included various documents reflecting financial statements for the year ended 30 June 2006. The financial statements for the 2007 financial year stated a 36.8% gross profit for that year compared with only 20.8% for the 2006 financial year.
As noted above, Mr Murphy prepared the two brochures having regard to information supplied by Ms McBrierty, including a valuation from RL Todd, dated 7 December 2007. Ms McBrierty had provided information to Mr Todd to enable him to prepare that valuation. Mr Todd had regard to trading of the business for the past four financial years, that is to say the four years up to and including 30 June 2007. Mr Todd noted that the business had a:
large increase in gross profit and earnings in the 07 year. This was the result of an increase in direct imports and a reduction in low margin lines.
Mr Todd noted that the primary method of valuation of a business of this type was capitalisation of maintainable earnings, that is to say, earnings before interest, taxation, depreciation and abnormals (EBITDA), which produces a total value for the business assets of stock, plant and equipment and goodwill. Mr Todd expressed the opinion that capitalisation rates based on post‑management earnings to total value are in the general range of 20% to 33.3% or earnings multiples of 3 to 5.
Mr Todd added as follows:
In the subject case factors affecting the capitalisation rate are that the business has only 1 year’s history of earning at current levels, the business requires a degree of technical knowledge of the lighting industry and has a working capital requirement of around $300,000. Given these factors I consider the capitalisation rate is at the upper end of the range or 33.3% which produces a value as follows:
Earnings  $463,000 x 100/33.3 = $1,390,000
Average stock  $   200,000
Plant & Vehicles (book value)     $   190,000
Goodwill  $1,000,000
$1,390,000
Mr Todd then stated that:
The net value of the business is $1,190,000 plus stock at valuation. Goodwill at $1,000,000 is 2.15 years purchase of earnings of $463,000 and is considered reasonable for the subject business.
A value of $1,190,000 plus stock is on the basis of a total sale of the business.
While that valuation was provided to Ms McBrierty and in turn was given by her to Mr Murphy of GMO, for the purpose of the listing – and used by him when preparing the brochures – the valuation itself was not provided to potential purchasers including the Metzes at any relevant time prior to the completion of the sale transaction.
Once Mr Goodwin became involved in the sale in about March 2008, he took the Metzes to meet Mr Sim at the premises of the business. He had met the Metzes a number of years earlier shortly after they had arrived from South Africa, but had had little contact with them since.
Mervin Metz said that in about mid-late March 2008 he met with Mr Sim at the business premises. His recollection (at [9] of Exhibit 10) is that the meeting was arranged and attended by Mr Murphy. However, I accept the later evidence of Mr Goodwin and Mr Murphy that Mr Murphy had gone out of the picture by the time of the first March meeting with Mr Sim and it was Mr Goodwin who attended both the March and April 2008 meetings at the business premises. Mervin Metz says that at the first meeting with Mr Sim amongst other things:
(1)Farrel Metz asked about the profits of the business and in particular asked for an explanation as to the increased gross profit, despite the reduction in turnover over the two previous years.
(2)Mr Sim said words to the effect that the reduction in turnover and level of gross profit was as a consequence of him no longer selling an imported Italian product.
(3)Mr Sim said that if the Metzes purchased the business he would agree to remain an employee for the purposes of training and instructing Farrel and Mervin to operate it without him.
(4)Mr Sim said he wanted Farrel and Mervin to develop relationships with the customers and suppliers of the business and that he would introduce them as the new owners.
(5)Mr Sim said he would give a restraint of trade so he could not compete with the business when he ceased employment.
(6)Mr Sim also said that the business had exclusivity arrangements with suppliers such as Cooper Industries, Xing Feng and Australume.
(7)He asked Mr Sim about the lighting industry and how competitive it was and was told words to the effect that the industry was relatively small, but that the business was one of the top players.
(8)He asked Mr Sim about things such as working hours as he was only looking for a five day a week operation. Mr Sim said that it was by and large an “8 to 5” job and that he only worked on Saturdays to clean up and little business was done on Saturdays.
(9)He also asked how the business generated business in response to which Mr Sim said words to the effect that “we get it from the electrical contractors”, a comment from which he assumed meant that customers would come in with a list of products they required and the business would supply them.
Mervin Metz further states that in about mid‑April 2008, he and his son Farrel met with Mr Sim and Mr Goodwin at the business premises to discuss aspects of the business including its trading performance and the maintainability of it, the stock in hand and Mr Sim’s continued involvement with the business. During this meeting, Mervin Metz says:
(1)he specifically asked Mr Sim whether he had good relationships with suppliers and customers;
(2)Mr Sim said that he had over the years built up good relationships with all suppliers and customers and he would ensure that these relationships would be maintained and he would be there to assist in building up and maintaining them;
(3)he asked Mr Sim what, if any, technical knowledge would be necessary to understand the business and was advised that no technical knowledge was necessary as the subject matter was “simply commonsense” and that in any event he would be around to train and assist them and train Farrel and him until they were completely familiar with the business and could operate it without him and could maintain the profits on an ongoing basis.
Farrel Metz, consistently with the evidence of his father, recalls the first meeting at the business premises with Mr Sim attended by himself and his father and he recalls, Mr Murphy. As noted above, I accept Mr Murphy’s and Mr Goodwin’s evidence that Mr Goodwin attended that meeting with them, not Mr Murphy. Farrel Metz says that, at this first meeting, he said words to the effect that he and his father were concerned that the business was one that depended for its success heavily on Mr Sim’s relationships with suppliers and customers and of his knowledge of the industry. Mr Sim then stated words to the effect that:
(1)the purchase price had been reduced to $1.29 million instead of $1.39 million;
(2)he would agree to providing ongoing assistance for at least one year following the acquisition notwithstanding that the brochure provided for 26 weeks only;
(3)he would fully train and instruct the Metzes so they would become completely familiar with the business and could run the business and at least maintain its earnings and goodwill;
(4)he would, when he left the business, provide a restraint as set out in the brochure;
(5)he would ensure continuation of the suppliers, customers and employees of the business following their acquisition and he would introduce them to all the suppliers and customers and would make sure they developed good relationships independently of him.
Farrel Metz says he then raised concerns with respect to the loss of turnover in reduction of purchasers in the 2006/2007 financial year and was told by Mr Sim that this was the result of getting rid of an expensive Italian line and replacing it with an alternative cheaper product and that even though purchases and sales were less, the gross profit margin the business was now able to generate was much greater – up to 36.8% from 28% – which led to a greater gross profit.
Farrel Metz says that at a mid‑April 2008 meeting at the business premises, which was attended by Mr Sim, Jim Goodwin, his father and himself, the following things were discussed and said:
(1)There was discussion about the concerns he had raised at the previous meeting in mid‑March about the drop in turnover and purchases and he asked Mr Sim whether the gross profit could realistically have increased despite a drop in turnover as a consequence of the Italian light fitting change. Mr Sim said it could have and did.
(2)The question of working capital required for the business was raised and Mr Sim said words to the effect that working capital to the value of no more than $100,000 would sufficient.
(3)The question of gross profit margin was discussed and Mr Sim told him it had increased to 36.8% and told him that this would be easily maintainable and he did not believe there would be any further decline in turnover.
(4)The question of the stock of the business was discussed which, in the brochure, had been estimated at approximately $200,000, and Mr Sim said that the stock was saleable “good stock”, which “would turn around quickly”.
(5)Mr Sim reassured him and his father that he had no intention of competing with the business following the sale and was looking forward to continuing his involvement with the business as a sales representative without the responsibility of owning and managing the business and would remain with the business for at least two years and teach him and his father how to conduct the business, would introduce them to customers and suppliers so they would be able to properly conduct business following his departure.
(6)Mr Sim said words that once he was done working at the business, he would go and farm a coconut plantation that he had recently acquired in the Philippines.
(7)He asked how the products were marketed and whether there was much potential for growth of the business and Mr Sim stated that it was easy as going to sit in a client’s office until they see you, after which the products sell themselves.
(8)He spoke of people he knew in the commercial property market and asked Mr Sim if these types of companies and organisations would be receptive to sourcing product from the business to which Mr Sim replied with words to the effect of “Why not?” and “I will be here anyway looking after sales”.
(9)He also asked about the legal fees that the business had incurred and asked if the business had been involved or implicated in any litigation and Mr Sim stated words to the effect that the legal fees incurred related to a minor matter, involving Hob Nob, which he was only pursuing on principle.
Farrel Metz says that at the April meeting, he also asked Mr Sim whether the business had any exclusive arrangements to which Mr Sim replied with words to the effect that the business did have exclusive supply arrangements for Western Australia with certain suppliers, namely Australume, Cooper Industries Australia and Xing Feng.
Farrel Metz says (exhibit 1 [27] and [28]) that later before making the offer to purchase the business he told Mr Sim that his promises and representations as to staying with them in the business for at least two years and teaching them the business and introducing them to the customers and suppliers and familiarising them with the business and maintaining sales were the most important factors in inducing Mervin and him to purchase the business and that they wanted some protection in that regard. Therefore, they would propose the sale of the business on conditions that, amongst other things, Mr Sim enter into an employment agreement on terms satisfactory to them.
I infer from the evidence of the Metzes, and also from that of Mr Sim and Mr Goodwin, to which I will soon come, that the two year employment period was finally negotiated during the course of the meeting on or about 18 April 2008.
Mr Sim accepts there were two such meetings in March and April 2008, but denies that the representations pleaded were then made either at all or in the precise terms alleged. Mr Sim recalls there were in fact four or five meetings between the parties, in or about mid‑April 2008, and that he was told by Ms McBrierty that she had also attended other meetings with the applicants and “Lorraine”, the accountant of the business, but he did not attend them. Mr Sim recalls for example another meeting with the Metzes at Bellini’s Restaurant on one occasion, and recalls another with them at a Chinese restaurant. I should note that little turns on this evidence as the parties agree, on the evidence, that the substance of what occurred during the negotiations occurred at the March and April meetings with Mr Goodwin in attendance.
Mr Sim recalls offering to remain an employee for six months, but states that the applicants instead requested, through Jim Goodwin, that he stay on for two years, to which “I ultimately agreed”.
Mr Sim recalls a subsequent meeting in or about April 2008 where he stated to the Metzes in effect that he would train them about lighting products and their uses and the running of the business in general, but that he never stated he would train them “comprehensively” in all matters of, and associated with, the running and operating the business.
He also recalls at this April meeting that he said he would introduce the Metzes to the more important customers and suppliers of the business but never stated that he would introduce them “to all suppliers and customers” or that he would ensure that they independently developed good working relationships with relevant suppliers and customers.
He also recalls stating at this meeting that he had excellent relationships with all suppliers that mattered, but did not state that he would “ensure” that those relationships would “be maintained” if they bought the business.
Mr Sim further says that he stated that the turnover of the business had decreased, but the profit had been increased substantially due to the business importing a lot of lighting products directly from China, rather than through Australian suppliers, and by reason one of the local suppliers having ceased buying lighting products from Targetti, whose products were in his opinion too expensive and whose warranty service was unreliable.
Mr Sim denied that he said that the 36.8% gross profit “at the then current level of turnover” was “easily maintained” or words to that effect.
Mr Sim says that he did state that in addition to cashflow from sales, the business only required additional working capital of $100,000 as a reserve. He said this because that was all that was needed as the business did not carry any big overheads or expenses.
Mr Sim says he also stated in effect that some of the business stock was slow moving but that all stock was saleable, and was just waiting for the right project to place the stock. He denies that he stated that the stock would “turnaround quickly” or words to that effect.
Mr Sim says that he stated that he and the first respondent had an excellent relationship with all of the customers “that mattered”, but that is all that he said. He further states that he did not state that he would assist the applicants to maintain those customer relationships and was never asked a question about that.
Mr Sim states that he also told the applicants that the business had ongoing projects where the business expected to get formal orders worth at least $2 million, possibly up to $2.5 million, as was the case. He did however add the words “specific details of which would be provided in due course” or words to that effect.
Mr Sim also rejects the applicants’ evidence that he stated that he would ensure there were “enough future projects to maintain the turnover and profitability of the Business or that the Business would be awarded further projects in the near future, the specific details of which he would provide in due course”.
Mr Sim recalls stating, however, that he would assist in running the business but not that he would support the applicants “to maintain the turnover and goodwill of the business”.
Mr Sim says that he recalls stating to the Metzes on numerous occasions that they needed to get out into the market and source new clients. He recalls Farrel Metz stating that he was going to look after all the sales and was confident he could increase them.
Mr Sim denies stating that the business was the “exclusive supplier and distributor in WA of the products supplied by Xing Feng, Cooper Industries P/L and Australume”. He says the business never had exclusive distribution agreements with any suppliers.
In his responsive witness statement (exhibit 35 [3]) Mr Sim denied that he ever stated at any meeting that he would agree to provide ongoing assistance of at least one year following the acquisition. He says that based on his experience in the industry he did not think that any longer than six months would be necessary for a purchaser to learn the business and maintain earnings and good will. That is why the GMO brochures only ever stated six months. It was only at the subsequent meeting in April 2008 that he agreed to stay on for two years after being requested to do so by the applicants.
Mr Goodwin said that on or about 17 March 2008, he and the Metzes met with Mr Sim at the business premises in Osborne Park. Mr Sim then responded to queries raised by the Metzes during discussion about the business with words to the following effect:
(1)The decrease in turnover and increase of gross profit in the last three financial years would not affect the profitability of the business and was a consequence of Mr Sim abandoning an expensive Italian product and replacing it with an alternate cheaper product imported from China, which the business sold at a higher margin, and Mr Sim had also been experiencing difficulties at home while finalising a divorce.
(2)That the gross profit of the business (which at that time was stated in the brochures to be approximately 36.8%) was readily maintainable – something that Mr Sim repeated more than once.
(3)He had a great relationship with all of the customers of the business and he would assist the Metzes to establish and maintain those relationships.
(4)The stock that would be sold with the business would be readily saleable and would turn around quickly. Mr Sim took the Metzes and Mr Goodwin through the warehouse in the premises and identified which stock was required for which project and said that most of the stock was virtually all sold.
(5)That limited technical knowledge was required to understand the nature of and the subject matter of the business as it was all commonsense and in any event he would be around to teach Farrel and Mervin Metz until they were both completely familiar with the business and able to operate the business independently of him and maintain the profits.

Counsel for the first respondent and Mr Sim put to Mr Goodwin in cross‑examination that Mr Sim said a number of things. Mr Goodwin accepted that some of those things were said – consistent with his own evidence – but that others were not. For example, Mr Goodwin plainly had no recollection of Mr Sim saying that, for his training and instruction for the Metzes to be effective, “he required them to put every effort into the business”.
Nor did Mr Goodwin recall that Mr Sim had said during this meeting that relationships with customers and suppliers of the business “were dependent upon the business paying its accounts on time”.
He also rejected a proposition that gross profit of the business was only discussed at the second meeting in April and not at the first meeting in March. Mr Goodwin recalled not only the issue being discussed of importing a lot of lighting products directly from China and through Australian suppliers, but also that the Italian line was mentioned and he recalled that Mr Sim had said that one of the local suppliers that he had ceased using was Targetti. He remembered a comment to the effect that it was too expensive.
Mr Goodwin, however, did not recall any discussions at this first meeting about exclusive arrangements with suppliers.
Mr Goodwin did not recall Mr Sim discussing a working capital requirement of around $100,000 at this first meeting, and noted that the question of working capital had been mentioned in one of the brochures.
Mr Goodwin also confirmed that the question of gross profit margin and its maintenance, notwithstanding a decline in sales, was canvassed “quite solidly” at this meeting because it was a strong question in the purchaser’s mind.
On 18 April Mr Goodwin said he attended with the Metzes at the business premises and met with Mr Sim for a second time, at which discussion ensued during which Mr Sim did and said the following things to the Metzes in relation to the business:
(1)During the two years he was to be employed by the business he would train and instruct Mervin and Farrel Metz fully and comprehensively in all matters of and associated with running and operating the business.
(2)He would introduce Mervin and Farrel Metz to all suppliers and customers of the business and would ensure that each of them independently developed good working relationships with the suppliers and customers of the business so that following the end of the two year period, the goodwill and earnings of the business could and would be maintained. He made this point frequently.
(3)He had an excellent relationship with all of the suppliers of the business which he would ensure would be maintained if Farrel and Mervin Metz bought the business.
(4)If Farrell and Mervin Metz were to purchase the business he would not for a period of five years in any way compete with the business.
(5)He had an excellent relationship with all of the customers of the business which he would assist Farrel and Mervin Metz to maintain if they were to purchase the business; and he pulled out files relating to specific clients to show them the type of work that he had been doing.
(6)The business had plenty of projects on hand to the value of approximately $2 million, a figure he mentioned a couple of times.
(7)At various stages during the negotiations Mr Sim stated that the business had plenty of forward work.
(8)Mr Sim would remain employed with the business for two years during which time he would assist and support Farrel and Mervin Metz to run the business.
(9)Mr Sim would refrain from competing with the business and was looking forward to continuing the role in the business as a sales representative without the responsibility of running the business. He said that he had in any event nowhere to go.
(10)He would teach and train Mervin and Farrel Metz to run the business and that this would have to be in a staged manner.
(11)He would introduce Mervin and Farrel Metz to customers and suppliers of the business.
The evidence of Mr Goodwin does not deal with the course of negotiations that resulted in Mr Sim agreeing to stay on in the business for two years following settlement. As noted, Mr Sim denies that he ever suggested at the March meeting that he was prepared to extend his involvement to 12 months instead of the six months represented in the brochure. He denies Farrel Metz’s evidence in this regard.
I am not satisfied on the balance of probabilities that there was any firm offer made by Mr Sim at the March meeting that he would stay for 12 months, but do accept Farrel Metz’s evidence that a 12 month employment period was mentioned.
There is no doubt that at the 18 April 2008 meeting the parties discussed very directly the question of Mr Sim’s continued employment if the applicants were to purchase the business and that the Metzes made it very plain that unless he were prepared to remain as an employee for at least two years, they would not be interested in purchasing the business.
As to the representations made at the April meeting, I accept without reservation the evidence of Mr Goodwin as to what was actually represented. Of the contesting witnesses, his recall of what was said was clear, and given without any hint of equivocation. He was tested in cross‑examination and the clarity of his recollection was confirmed. He is not a witness who had any axe to grind in the proceeding.
I also generally accept the substance of Mervin Metz and Farrel Metz’s evidence as to the items discussed at the key meetings between the parties on the business premises in March and April 2008. I accept that the tenor of the negotiations was that the Metzes knew they needed a substantial commitment from Mr Sim to remain with the business for at least two years and not merely six months (or a year) if they were to make a success of the business. I find that Mr Sim understood the importance of this requirement to the Metzes.
I also accept Farrel Metz’s evidence that he separately impressed on Mr Sim, prior to presenting the offer to purchase the business, the need for the sale agreement to be conditional upon a two year employment agreement. The sale agreement was signed by the Metzes 11 days after the 18 April meeting on 29 April 2008. Just over a week after that, Mr Sim and Ms McBrierty, as directors of the first respondent, accepted the offer set out in the sale agreement subject, amongst other conditions, to the employment condition mentioned above.
On the subject of Mervin Metz’s recollection of events, the first and second respondents say he was demonstrated not to have a reliable memory. On numerous occasions counsel for the first respondent and Mr Sim suggested to Mr Metz his memory was not good. Mr Metz agreed at one point in cross‑examination that he did not recall the events of the April meeting. In this I took Mervin Metz to be indicating he truly lacked, as he sat in the witness box, any detailed recall of what happened at that meeting. This admission weakens the value of his primary evidence, even though he later sought to recover his position by saying he had refreshed his memory. Counsel challenged Mr Metz to later produce the notes he said he had refreshed his memory. He said he would. The Court heard nothing further from counsel for those respondents on this issue. Overall, Mr Metz’s evidence seems to have been supported by reference to documents. I do not think he had a detailed recall of all meetings but I do consider that he had an overall recollection of things that he considered important. Generally speaking, I do not count Mervin Metz’s occasional lapses against him.
Following the signing of the sale agreement, pursuant to condition 1 of Annexure A to the sale agreement, the applicants undertook due diligence. By email dated 12 May 2008, Farrel Metz provided Jim Goodwin of GMO with a typed list of due diligence requirements, with the understanding that Mr Goodwin would seek from the first respondent and supply to the applicants the required information.
Farrel Metz says that on or about 16 May 2008, he met with Ms McBrierty at the premises of the business during which meeting he asked her, among other things, whether the first respondent had been involved in any disputed claims and the nature of such claims and/or court proceedings, in response to which she words to the effect that the company had not been involved in any disputed claims or litigation. Ms McBrierty, as explained below, denies there was any such meeting or representation.
On or about 18 June 2008, Jim Goodwin, having been earlier requested by Farrel Metz to provide a detailed list of projects on hand for the 2008/2009 financial year, provided Farrel Metz by email with a two page handwritten document which he had obtained from Mr Sim. The list, in Mr Sim’s handwriting, contained 13 items, the first 12 totalling $2,059,000, the last, item 13, stated to be “potential $400K we will get some”. At the bottom of the first page, Mr Sim made an additional notation that “There is many many more small project $5-$10K.”. The covering email letter to the Metzes from Jim Goodwin described the attached document as “forward orders summary prepared by Paul Sim, for Illumination Services WA”.
A question arises as to what the description of the content of the list as “forward orders” meant, if it was Mr Sim’s or Mr Goodwin’s description. Asked how he came by the document, Mr Goodwin said that he collected it from Illumination Services, from Paul Sim on 18 June 2008. In cross‑examination Mr Goodwin was asked whether Mr Sim had told him that these were “estimates of the projects”. Mr Goodwin replied “forward orders”. Counsel noted that the document Mr Sim had provided him with did not use the expression “forward orders”. Mr Goodwin responded: “No, but that was Paul’s description”. When further pressed Mr Goodwin said they were estimates, “forward orders estimates”. In re‑examination Mr Goodwin explained by reference to one of the entries in the document:
It was a forward order estimate. These are companies with forward orders and the estimated value of it was $350,000 but not to a dollar degree. They are not $349,112. They are just an estimate of what that would be.
As to what he understood by “forward orders”, Mr Goodwin replied:
Orders to come. Work that was in reasonable – reasonably could be expected to be commenced by the company.
It was never put to Mr Goodwin (or Mr Murphy) in cross‑examination by counsel for the first respondent and Mr Sim that the document was not received by Mr Goodwin on or about 18 June 2008, but was in fact provided at some much earlier time by Mr Sim to GMO when GMO first received the listing from Ms McBrierty or thereabouts, as pleaded in the defence. To the extent therefore that the defence and Mr Sim’s evidence suggests to the contrary, which it does, I reject Mr Sim’s evidence and rely entirely on that of Mr Goodwin, which I accept.
On the face of it, therefore, the description of the content of the document as “forward orders” was that of Mr Sim, according to Mr Goodwin, whose evidence I accept. But as to what that meant, or represented, and whether the Metzes relied on the document as representing secured orders is discussed below.
I do note however that the question of projects on hand had been raised at earlier meetings, especially that of 18 April 2008. Mr Sim in his evidence suggested that the question of projects on hand was discussed at the April 2008 meeting, but only in the context of him indicating that he considered that there were about $2 million worth of projects for which orders could be anticipated in the future. I accept the evidence of Mr Goodwin that the applicants were keen to receive details of the business’ projects on hand and had been pressing for a list for some time. One would reasonably assume that a list of projects on hand would be an important consideration to any prudent purchaser acquiring the business with an asking price of $1.25 million and a goodwill component of $900,000.
One of the last things to occur prior to settlement and the applicants taking possession of the business was the completion of Mr Sim’s employment agreement. By letter dated 23 June 2008, the terms of which were confirmed in writing on the letter by Mr Sim on 24 June 2008, the terms and conditions of employment of Mr Sim by the first applicants provided, in essence, that:
·Mr Sim was employed as a “sales representative”;
·the employment commenced on 1 July 2008;
·the employment was stipulated to end on 30 June 2010;
·Mr Sim was to report directly to the Board at the times and in the manner required by the Board;
·Mr Sim was expected to work at least a 37.5 hour week, which would generally be worked between Monday and Friday;
·his general duties included devoting the whole of his time, attention, skill and normal business hours to the duties of his office and such other duties assigned by the Board from time to time, including to promote the interests of the company;
·the basic salary was set at $65,000 per annum, plus superannuation;
·a vehicle allowance based on mileage for business purposes was stated;
·clause 6 contained an “Acknowledgment” in these terms:
You acknowledge and agree that:
(a)the Company purchased the Business from your company Simmac Pty Ltd pursuant to the Agreement for Sale of Business as a Going Concern dated 7 May 2008 (“Agreement”);
(b)the Company paid substantial goodwill of $900,000 for the Business. That goodwill is based upon your remaining a key employee of the Business for a period of at least 2 years;
(c)your contacts and knowledge are essential for the success of the Business;
(d)the Agreement was conditional upon your entering into this contract (clause 6 of Annexure “A” to the Agreement); and
(e)the Company purchased the Business in reliance upon your representations that you would remain a key employee of the Business for period of at least 2 years from the settlement date.
(The “Company” referred to was earlier defined in the letter to include both entities constituting the first applicants in this proceeding);
·a resolution of disputes process was provided for, as were a range of other terms and conditions relating to superannuation, expenses, leave, confidentiality and restraint after termination of employment;
·a restraint period of five years;
·termination of the employment would occur automatically at the end of the contract, being 30 June 2010, but the contract might be terminated “at any time by either party giving one (1) months notice in writing to the other party” or in the case of the first applicants, payment in lieu of notice;
·by cl 15.2 the parties agreed that the contract constituted “the entire agreement” between the parties with respect to the subject matter of it and contained all the representations, warranties, covenants and agreements of the parties and there are no oral statements, representations, undertakings, covenants or agreements between the parties expressed or implied except as are contained in the contact.
The first applicants also took a lease of the business premises from the fourth respondents prior to settlement.
EVENTS FOLLOWING SETTLEMENT
As noted above, the brochures and the sale agreement provided that stock in trade was valued at $200,000. However, item 3 of Annexure “A” to the agreement provided that in the event it exceeded the sum of $200,000 the Buyer would be responsible for the excess.
The Metzes say, and I accept their evidence, they did not know that there was as much stock as there in the end turned out to be. Farrel Metz says that he saw stock stored at the premises of the business (as Mr Goodwin confirms) but at no material time up to the making of the agreement did Mr Sim advise him that there was a second warehouse in Howe Street, Osborne Park containing additional stock.
Farrel Metz says that in late June 2008, Jim Goodwin of GMO provided him with a schedule entitled “Stocktake 2008 – Howe Street Warehouse” listing stock at $89,030.98, which he thought was an itemisation of all the stock of the business – something considerably less than the $200,000 estimate. He says he proceeded to settlement on the basis that this was the stock value.
However, after settlement, Farrel Metz says he became aware that the stock housed in Howe Street was in addition to that at the business premises, which was later valued and resulted in Mr Sim writing a letter to the Metzes dated 28 July 2008 in which he stated, amongst other things, that the total stock at valuation was $346,987.24, of which $200,000 had been paid for, leaving an outstanding balance of $146,987.24. Mr Sim indicated that he and Ms McBrierty were prepared to discount that figure to $115,000 if payment was made on or before 15 September 2008.
A month later, on about 28 August 2008, Mr Sim advised Farrel Metz about the need to order additional stock from Xing Feng, through a business agent in China, Anita Chan, to cover an existing order on hand. Farrel Metz acted on this advice from Mr Sim to order further stock to the value of USD66,418.80, or approximately AUD90,000, on 28 August 2008. It seems Mr Sim had earlier placed the order with Anita Chan on 5 August without then advising Farrel Metz.
In early October 2008, the Metzes wrote to Mr Sim and Ms McBrierty and secured agreement to the repayment of by instalments the additional stock to the value of $115,000, concluding with a $40,000 payment on 4 December 2008.
While these matters of stock were being resolved, the evidence shows that Mr Sim was, more or less, conducting the business as he usually had in the years preceding settlement. In particular, he pursued the projects on hand, most of which had been identified in the list prepared on 18 June 2008.
Mervin Metz said that, upon taking possession, Mr Sim continued to manage the business and would direct him to do certain tasks, for example, collating and packing orders, checking of stock from the goods stored in the warehouse or collecting orders for delivery to site. Mr Sim also asked him on several occasions to source and obtain the supply of specific products, which he did.
Mervin Metz recalls that on or about 11 July 2008, Mr Sim ran a training session at the business premises for Farrel Metz, Lauren Kuster, then an “old” employee of the business, and himself during which Mr Sim discussed lamps, control gear and ballasts and described which lamps and control gear was suitable for certain ballasts. Lauren Kuster at this point was a sales person in the business. This training session ran for approximately one hour and Mervin Metz made notes of it, which he produced to the Court.
Mervin Metz recalls a second training session occurred on or about 21 July 2008, which was about low voltage downlights. Again Farrel and Lauren Kuster and he attended this session, and he took some notes, which he again produced to the Court. The session was again for about one hour and held at the business premises.
Mervin Metz recalls that other training sessions were held later which were attended by himself, Farrel Metz and Lauren Kuster, each lasting about one hour, and each held at the business’s premises. He took notes in respect of each of them. They occurred on 28 July 2008 (about emergency and exit lighting), 4 August 2008 (incandescent and discharge lamps at their applications) and 1 September 2008 (fluorescent fittings and their associated lamps).
After the 1 September session, Mervin Metz says that Mr Sim did not conduct any further training sessions.
Mervin Metz says that he felt overwhelmed during each training session as he did not fully understand much of the information Mr Sim conveyed, as it was highly technical. But he was not overly concerned as he believed that Mr Sim would be able to assist as he had two years employment with them. Mervin Metz says that whenever he did follow up Mr Sim for help, Mr Sim dismissed his requests, saying words to the effect “You should know this by now”.

The applicants say they discovered in the short time following Mr Sim’s departure that there were no proper bases to a range of representations made to them before the sale and settlement. Later again they say they discovered the product substitution problems they eventually pleaded in 2010.
Going back to the primary question of rescission, the question that one comes back to is, in circumstances where contraventions of the TP Act of the seriousness I have found, from the contract negotiation period and following, is why should the decision as of late June 2009 of the applicants to rescind the agreements count against them in all the circumstances? Why too should the fact that the prosecution of this action over more than 18 months, during which the applicants have carried on the business, count against them when rescission is sought? In Munchies, as noted above, the Court (Fisher, Gummow and Lee JJ) observed (at 288‑289) of the respondent/vendor in that case that, by refusing to accept the return of the property involved in the sale, they elected to carry the risk of any devaluation of plant or business that might occur by allowing a business to be continued by the purchasers. In particular, they accepted the risk that the business might be terminated either by the purchasers walking out or being evicted. Those things might have happened in this case, but the applicants in fact carried on the business and attempted to protect their investment in the best way they could by trading and making such profits as they could. The fact is, however, the trading and the profits achieved were not those achieved by the business prior to their purchase of it. In this regard, I find the actual trading position is as set out in the expert evidence of Mr Cook based on the financial information in this regard set out in Farrel Metz’s evidence.
There is no doubt that the applicants have suffered real loss and damage as a result of the contraventions of the TP Act I have found. There is no doubt that, leaving aside the other significant examples of misleading and deceptive conduct found above, if the applicants had known Mr Sim would not stay the promised two years, and had no reasonable grounds for making that representation, there is simply no way they would have entered into the sale agreement or proceeded to settlement.
Accordingly, I entertain a significant concern that to leave the first applicants without the remedy of rescission, and merely to order damages (which would be no precise task in any event), would be to condemn the first applicants to a continuation of a sale transaction that was tainted from the outset with the fundamental misrepresentations of Mr Sim and the first respondent.
To order damages, but not to order rescission and reverse the transaction would, I consider, simply leave the applicants with a business which, while they have done their best to operate it successfully and would continue to do so, would continue to suffer from the stain of the original contraventions of the TP Act. That would constitute an unjust outcome that fails adequately to compensate the applicants for their loss. In the result, I do not consider that the first applicants can be adequately compensated for the loss they have suffered unless the Court orders rescission of the sale agreement and associated agreements.
While it may be that, to order rescission under the TP Act, complete restitution of the parties’ positions from before the sale agreement is not necessary, I am satisfied that rescission of the sale transaction is feasible in any event. The third and fourth respondents, through Ms McBrierty, have settled on terms with the applicants that will ensure the lease of the premises will be available upon the return of the business to the first respondent and Mr Sim.
Also the gains and losses that the parties have made or suffered between the settlement of the sale agreement on 4 July 2008 and the date of return of the business to the first respondent are able to be adjusted to ensure that justice is done to all. The first respondent and Mr Sim will then have back in their control the business which should never have been sold on the basis of the misrepresentations I have found against them, and the applicants will be restored as far as possible to the position they would have been in had they not entered into the transaction. Ms McBrierty will still hold her lease.
I mentioned the question of assessment of damages and difficulties associated with it. Mr Simon Cook was called by the applicants to express an opinion, amongst other things, as to the value of goodwill as at the time the sale agreement was concluded. He expressed the view in his report (exhibit 26) at [11.3] that as at 7 May 2008 with the benefit of hindsight, he would calculate the value of the business at $216,000, representing future maintainable earnings but with no goodwill at the business at that time. That evidence depended on a number of assumptions (being the pleaded representations) being made good, not all of them being consistent with the findings I have made. For example:
·In [7.4] of Mr Cook’s report he assumes excellent relationships with suppliers and excellent relationships with all customers had been disproved, something I have not found.
·At [7.5], Mr Cook assumed a firm projects on hand to the value of at least $2 million and closer to $2.5 million, which I have not found was a representation relied on.
·In [7.7], Mr Cook assumed exclusive agency representations, which I have found were not made.
In these circumstances, while the expert evidence of Mr Cook is helpful, it has not addressed the factual scenario as I have ultimately found it to be.
Mr Cook’s report generally assists me in its overall analysis of how the value of a business might fluctuate depending on assumptions made by confirming the view I have formed that, as at the time the first applicants made the offer to purchase the business on 7 May 2008, and when they settled on the transaction on 4 July 2008, the business necessarily did not have the value, and certainly not the goodwill value, that it would have had, had Mr Sim’s crucial employment representation not been misleading and had he not engaged in the other misleading or deceptive conduct I have found. It is difficult on the evidence in all these circumstances to say precisely what the value of the business was, if anything, so far as goodwill is concerned, when the first applicants purchased it, but it was plainly not worth anywhere near the $1.25 million the first applicants paid for it.
I reject the respondents’ submissions that Mr Cook’s opinion should largely be ignored due to his lack of experience/qualification to give his evidence. Mr Cook’s evidence was in the nature of expert accounting advice but tempered by his experience in addition to business sales.
Taking all these factors into consideration, rescission remains, in my estimation, the only fair and just means of ensuring that the first applicants are properly compensated for the undoubted loss they have suffered at the hands of the respondents.
Damages: The applicants submit that in the light of the applicants being unaware of the current financial position of the first respondent and so of the first respondent’s ability or ability to satisfy any order for rescission, it is appropriate for orders to be made also against Mr Sim for repayment of the sums that will need to be paid to the first applicants consequent upon rescission. They submit that the conduct of Mr Sim clearly attracts that relief, given that he was involved in the contravention conduct under the TP Act. I agree. Mr Sim plainly was involved in the first respondent’s breach and attracts liability under s 75B of the TP Act.
Orders proposed by the applicants: The applicants seeks orders to the following effect:
1.That the Court declare void ab initio, that is to say rescind, the sale agreement, the employment agreement and the lease.
2.The applicants, in exchange for payment ordered below, return to the first respondent, at a date to be ordered by the Court, the assets comprising the business known as Illumination Services WA and sign all documents necessary and do all things necessary to transfer the business name and assets comprising the business to the first respondent.
3.In relation to stock:
(a)The first and second respondents pay to the first applicants the sum of $105,000, being the amount paid by the first applicants for stock which was unsaleable or unmarketable.
(b)The first and respondents pay to the first applicants the value of the balance of stock held at the business on the date on which the business is returned to the first respondent as determined by a stocktaker, appointed by the Chairman for the time being of the Real Estate Institute of Western Australia, or another person appointed for this purpose by the Court, failing agreement by the parties.
4.Subject to compliance with the preceding order for payment of $105,000, the applicants are not to be compensated for the payment of stock in the sum of $200,000 paid upon settlement of the sale agreement, nor for the payment of the additional sum of $115,000 paid consequent upon the stocktake after settlement.
5.The first and second respondents to pay the first applicants the sum of $650,000 in respect of the goodwill component of the purchase price actually paid to the first respondent, that is to say, the sum of $900,000, less the sum of $250,000 that remained unpaid at material times under the sale agreement.
6.The first and second respondents pay to the first applicants the sum of $150,000 paid in respect of plant and equipment.
7.The first respondent and second respondent pay to the first applicants by way of damages:
(a)Conveyancing costs incurred in the sum of $2,258 in connection with the purchase of the business.
(b)Stamp duty paid on the purchase of the business by the first applicants in the sum of $48,314.
(c)Interest on the sum of $50,000 which was paid as a deposit by the first applicants under the sale agreement at the rate of 8.3% per annum under the sale agreement from 4 July 2008, being the actual settlement date of the sale agreement, to the date of payment.
8.The payment of the above sums be subject to the deduction from the aggregate amount to be paid of profits derived by the first applicants in the operation of the business from the date of settlement of 4 July 2008 to the date that payment of the aggregate sum is to be made.
9.For the purpose of counting for profit in the specified period, the second and third applicants should be deemed to have received by way of salaries as full time employees of the business either $554,749 or $375,000 additional to the sums of $58,160 for the financial year ending 30 June 2009, the sum of $58,160 for the financial year ending 30 June 2010 and the sum of $29,050 for the financial year ending 31 December 2010 as calculated in [8(k)] of Annexure A of the written closing submissions of the applicants in this proceeding.
Consideration of proposed orders: I am prepared to make orders that reflect the substance of those terms. However, so far as an allowance in respect of a deemed sum of remuneration for the full time employment of the second and third applicants in the business is concerned I find it both difficult to accept the applicants’ submissions and to assess this sum. However, an appropriate sum greater than what the applicants have actually been paid must be allowed. In my view, the misrepresentations I have identified meant that the applicants necessarily struggled to achieve profit of the type that was represented and remunerate the Metzes at an appropriate level. Not to allow an additional amount of salary on account of remuneration foregone would mean, in effect, that when the business is returned to the first respondent, they would get the business back without having to pay for the “caretaking” efforts of the Metzes in the period, effectively from 4 July 2008.
However, the calculation of the amount that the Metzes have foregone cannot, in my view, simply be calculated by reference to what, prior to the purchase, Mr Sim and Ms McBrierty were paid by way of salary. Nor can it simply be calculated by reference to what people in businesses like this normally get – Mr Cook’s alternative proposal put forward by the applicants. For a start, the Metzes did not have the skills at the outset to justify what Mr Sim and Ms McBrierty were paid. Mr Sim, as an employee of the applicants, received about $65,000 per annum. Further, the financing arrangements to purchase the business put in place by the applicants with Westpac to differed significantly from those the respondents had in place to operate the business. This was bound to affect cashflow and affect the ability of the applicants to pay any extravagant, or even moderately high sum by way of salary to the Metzes. I consider taking all this into account, that the remuneration for each of the Metzes was bound to be less than it had been for the two old directors. I would, therefore, doing the best that I can, allow an additional or deemed sum of $255,000 by way of salary for the period to 30 June 2011, which is equal to an additional $85,000 per annum over three financial years to 30 June 2011.
I recognise that I have, in mediating the allowance for remuneration foregone by the Metzes in this way, taken into account the financial structure they adopted in financing the business. The applicants caution against such an approach citing the decision of Steytler J in Gardner Corp Pty Ltd v Zed Bears Pty Ltd [2003] WASC 13 at [74]‑[83] where at [78] his Honour observed:
[78]In this case, the whole of the loss claimed by Krishell would not have occurred but for the misrepresentation and there was no item of loss which could, in my opinion, properly be separated out and attributed to some other cause.
His Honour there made reference to what Hayne J said in Henville at [160]. In my view, however, it is appropriate to have regard to the financing position for the reason expressed above.
I accept the evidence of the financial performance of the business as conducted by the first applicants between 4 July 2008 and 31 December 2010 set out in the financial statements provided by Farrel Metz in his evidence, as well as the adoption of those figures by Mr Cook in his report. They indicate, as the applicants contend in Annexure A of the applicants’ written closing submissions at [8(g)], as follows:
·For the financial year ending 30 June 2009, a profit of $110,608.77 (exhibit 26, Mr Cook’s report, p 93).
·For the financial year ending 30 June 2010, a profit of $143,802.00 (exhibit 26, p 96).
·For half year ending 31 December 2010, a loss of $102,738.30 (trial bundle, tab 173).
·Aggregate gross profit in the period to 31 December 2010 of $151,672.77.
However, what this assessment does not do is take into account the actual position in respect of the full financial year for the financial year ending 30 June 2011. The provisional loss indicated by the evidence, which I have accepted, of $102,738.30 may be more or less.
The applicants also contend that legal costs paid by them in connection with the conduct of this proceeding must also be brought to account when calculating the net profit. I reject that submission on the basis that to make such an allowance would, in effect, enable the applicants to recover as an item of loss or damage in this proceeding their legal costs, which I consider is not permissible: see Gray v Sirtex Medical Ltd [2011] FCAFC 40; (2011) 193 FCR 1. The applicants will be duly compensated in respect of their costs of the proceedings by an award of costs in relation to the proceedings, assuming such an order is appropriate.
The relief proposed by the applicants should also be subject to the set off of the $2,821 sum which I have found to be payable by the first applicants to the first respondent on the cross‑claim.
There is also a question whether order 1 and 2 of the orders proposed by the applicants effectually requires the rescission of the agreements, return of monies paid and delivery of transfer documentation.
ORDER AS PROPOSED BY COURT
Given that I consider rescission is an appropriate remedy, substantially on the terms proposed by the applicants, together with the damages, including against Mr Sim, and allowing for the set off identified, I would formally order to that effect.
As a result, it is unnecessary to quantify the damages that might have been awarded if damages had been identified as the appropriate remedy. Accordingly, it is not necessary to deal with damages for the contraventions of the TP Act or the breaches of contract identified above as a separate assessment issue.
The proposed order of the Court is:
1.The Court declares to be void ab initio, pursuant to s 87(2)(a) of the Trade Practices Act 1974 (Cth):
(1) the sale agreement between the first respondent and the first applicants in respect of the business Illumination Services WA that was made 7 May 2008;
(2) the employment agreement between the first applicants and the second respondent that was made 24 June 2008;
(3) the lease of unit 9, 3 King Edward Road, Osborne Park, Western Australia granted by the fourth respondents to the first applicants on 5 July 2008.
2.The first applicants pay the amounts ordered under Orders 4 to 11 of this Order, on a date agreed by the parties or, failing which ordered by the Court.
3.Immediately upon payment of the amounts ordered by Order 2 above, the first applicants return to the first respondent the assets comprising the business of Illumination Services WA and sign all documents necessary and do all things necessary to effect a transfer of the business name and assets comprising the business to the first respondent.
4.In relation to stock in trade:
(1)The first and second respondents pay to the first applicants the sum of $105,000, being the amount paid under the sale agreement by the first applicants for stock in trade which was unsaleable.
(2)The first and second respondents pay to the first applicants the value of the balance of stock held at the business on the date on which the business is returned to the first respondent, as valued by a person qualified to make such valuation as the parties may agree, or failing such agreement as nominated by the Chairman for the time being of the Real Estate Institute of Western Australia Inc.
5.Subject to compliance with Order 4(1) above, the applicants are not to be compensated for the payment of stock in the sum of $200,000 paid upon settlement of the sale agreement, nor for the payment of the additional sum of $115,000 paid by the first applicants upon the stocktake conducted under the sale agreement after settlement.
6.The first and second respondents pay to the first applicants the sum of $650,000 in respect of the goodwill component of the purchase price paid by the first applicants to the first respondent under the sale agreement.
7.The first and second respondents pay to the first applicants the sum of $150,000 paid in respect of plant and equipment paid under the sale agreement.
8.The first and second respondents pay to the first applicants by way of damages, the following:
(1)Conveyancing costs in the sum of $2,258 incurred by the first applicants in connection with the purchase of the business.
(2)Stamp duty on the purchase of the business paid by the first applicants in the sum of $48,315.
(3)Interest on the deposit of $50,000 paid by the first applicants under the sale agreement at the rate of 8.3% per annum from 4 July 2008, being the date of possession and settlement of the sale agreement, to the date referred in order 2 above.
9.The payment of the sums under Order 2 above, be subject to a deduction on account of profits derived by the first applicants in the operation of the business from the date of possession of 4 July 2008 to the date that payment is made in accordance with Order 2 above.
10.For the purpose of calculating profits for the purposes of Order 9 above, the second and third applicants be deemed to have received by way of salaries as full time employees of the business, in addition to the sums of $58,160 that they received in each of the financial years ending 30 June 2009 and 30 June 2010, and $29,050 in the financial year ending 31 December 2010, the additional amount of $29,050 for the period 1 January 2011 to 30 June 2011 and the additional sum of $255,000 (being an additional amount of $85,000 per annum for each of the financial years ending 30 June 2009, 30 June 2010 and 30 June 2011) and such other sum as the Court may order in respect of the period from 1 July 2011 to the payment date ordered under Order 2 above.
11.The payment made under Order 2 be reduced by the sum of $2,821 being the set off to which the first respondent is entitled under Order 12 of this Order.
12.The first respondent is entitled to the payment of $2,821 under the cross‑claim, but the cross‑claims are otherwise dismissed.

I will hear from the parties concerning:
1.the appropriateness of the Orders proposed in Orders 1, 2 and 3 in effecting rescission.
2.the date of payment under Order 2;
3.what Orders should be made in relation to the final calculation of profits in relation to the financial year ending 30 June 2011 and the period up to the date of payment under Order 2;
4.the final terms of this Order, particularly in relation to mathematical calculations and machinery provisions;
5.costs of the proceedings;
6.any other orders that may appear appropriate.
IMMEDIATE ORDER
The Court orders that:
1.The applicants bring forward a minute of proposed final Orders designed to carry forward the Orders proposed.

I certify that the preceding eight hundred and ninety-five (895) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.
Associate:
Dated: 25 August 2011

Citation:		Metz Holdings Pty Ltd v Simmac Pty Ltd (No 2) [2011] FCA 981
Parties:		METZ HOLDINGS PTY LTD (ACN 059 264 210) AS TRUSTEE FOR THE ZULU TRUST AND GROUP M PTY LTD (ACN 118 506 148) AS TRUSTEE FOR THE ROUBAIX TRUST, MERVIN METZ and FARREL METZ v SIMMAC PTY LTD (ACN 062 327 397), PAUL CAMPBELL SIM, LINDA MCBRIERTY and LINDA MCBRIERTY AND EDWARD HUGH JENNINGS AS TRUSTEES FOR THE LINDA MCBRIERTY SUPERANNUATION FUND
File number:		WAD 114 of 2009
Judge:		BARKER J
Date of judgment:		25 August 2011
Catchwords:		TRADE PRACTICES - misleading and deceptive conduct - where applicants allege respondents made misleading or deceptive representations relied on by applicants in entering agreement for sale of a business TRADE PRACTICES – s 51AC of the Trade Practices Act 1974 (Cth) - whether conduct of second respondent unconscionable - whether conduct of second respondent engaged in on behalf of first respondent REMEDIES - where rescission of sale agreement, lease agreement and employment agreement sought by applicants - whether damages would be an inadequate remedy - rescission appropriate in the circumstances
Legislation:		Trade Practices Act 1974 (Cth) s 51A, s 51AC, s 52, s 82, s 87 Fair Trading Act 1987 (WA) s 9, s 10
Cases cited:		Akron Securities Ltd v Iliffe & Ors (1997) 143 ALR 457 Australian Competition & Consumer Commission v Allphones Retail Pty Ltd (No 2) [2009] FCA 17; (2009) 253 ALR 324 Australian Competition & Consumer Commission v C G Berbatis Holdings Pty Ltd [2000] FCA 2; (2000) 169 ALR 324 Australian Competition & Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276 BB Australia Pty Ltd v Karioi Pty Ltd [2010] NSWCA 347; (2010) 278 ALR 105 Briginshaw v Briginshaw (1938) 60 CLR 336 Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Downey & Anor v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 Fubilan Catering Services Limited v Compass Group (Australia) Pty Ltd [2007] FCA 1205 Fubilan Catering Services Limited (Incorporated in PNG) v Compass Group (Australia) Pty Ltd [2008] FCAFC 53 Gardner Corp Pty Ltd v Zed Bears Pty Ltd [2003] WASC 13 Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 Gray v Sirtex Medical Ltd [2011] FCAFC 40; (2011) 193 FCR 1 Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133 Hurley v McDonalds Australia Limited [1999] FCA 465 Hurley v McDonalds Australia Limited [1999] FCA 1728; (2000) ATPR 41-741 Lewarne v Momentum Productions Pty Ltd [2007] FCA 1136 McGrath v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2; (2008) 165 FCR 230 McWilliams Wines Pty Ltd v L S Booth Wine Transport Pty Ltd (1992) 25 NSWLR 723 Metz Holdings Pty Ltd v Simmac Pty Ltd (No 1) [2011] FCA 263 Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; (1992) 67 ALJR 170
Date of hearing:	21-25 March 2011, 4-6 May 2011, 19 May 2011
Place:	Perth
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	895
Counsel for the Applicants:	Mr P Mendelow
Solicitor for the Applicants:	Karp Steedman Ross-Adjie Lawyers
Counsel for the Respondents:	Mr PG McGowan
Solicitor for the Respondents:	Metaxas & Hager

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 114 of 2009

JUDGE:	BARKER J
DATE OF ORDER:	25 AUGUST 2011
WHERE MADE:	PERTH

JUDGE:	BARKER J
DATE:	25 AUGUST 2011
PLACE:	PERTH

Brief overview........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[1]
Correspondence before action........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[37]
Outline of applicants’ case........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[46]
Respondents’ positions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[51]
Dealings up to settlement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[58]
Events following settlement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[124]
The events of 20 April 2009........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[192]
Representation pleaded in [15(a)] of statement of claim – two year employment period........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[238]
Representation pleaded in [15(b)] statement of claim – training........ ........ ........ ........ ....	[293]
Representation pleaded in [15(c)] of statement of claim – introductions........ ........ ........	[323]
Representation pleaded in [15(d)] of statement of claim – restraint of trade........ ........ ..	[348]
Representations pleaded in [16] and [16A] of statement of claim – gross profit........ ....	[360]
Representation pleaded in [17(a)] of statement of claim –relationship with suppliers...	[404]
Representation pleaded in [17(b)-(e)] of statement of claim – decreases in turnover not affecting profitability........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[417]
Representation pleaded in [17(f)] of statement of claim – working capital........ ........ ....	[450]
Representation pleaded in [17(g)] of statement of claim – stock easily saleable........ ....	[472]
Representation pleaded in [17(h)] of statement of claim –relationship with customers.	[500]
Representations pleaded in [17(i)] and [17(ia)] of statement of claim – projects on hand........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[520]
Representation pleaded in [17(j)] of statement of claim – future projects........ ........ ......	[584]
Representation pleaded in [17(k)] of statement of claim – assistance in running business........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[589]
Representation pleaded in [17(l)] of statement of claim – exclusive supplier........ ........	[594]
Representation pleaded in [17(m)] of statement of claim –litigation........ ........ ........ ......	[608]
Representation pleaded in [23A] of statement of claim – disputed claims/court proceedings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[617]
Collateral oral warranties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[630]
Representation pleaded in [21B] of statement of claim –product substitution........ ........	[642]
Matters pleaded in [24] and [24A] of statement of claim – employment agreement......	[708]
Matters pleaded in [27]-[39] of statement of claim – repudiation of employment agreement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[732]
Matters pleaded in [39F], [39G], [39M] and [39N] of statement of claim – breach of employment agreement on Howard Solomon project........ ........ ........ ........ ........ ........ .....	[745]
Matter pleaded in [63D] of statement of claim – failure to disclose product substitution practice........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[752]
Unconscionable Conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[759]
Matters pleaded in [71]-[72] of statement of claim – claim for return of erroneous payments........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[804]
Matters the subject of [67]-[70] of statement of claim - Westwide fittings claim and related cross‑claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[812]
Other cross-claims........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[822]
Remedies........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[829]
Order as proposed by Court........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[891]
Immediate order........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[895]