Meyidi Pty Ltd v Touloumdjian - [2013] SASC 146

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
MEYIDI PTY LTD v TOULOUMDJIAN & ORS
[2013] SASC 146
Judgment of The Honourable Chief Justice Kourakis
13 September 2013
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - PARTIES - GENERAL PRINCIPLES
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS - FALSE REPRESENTATIONS GENERALLY
The plaintiff, Meyidi Pty Ltd (“Meyidi”), operated a café at premises on Victoria Square. Meyidi contracted to sell the business to the first and second defendant, Mr and Mrs Touloumdjian, or such person as nominated by them. They nominated the third defendant, Taniel Pty Ltd (Taniel). Taniel operated the business for less than two years before closing.
Taniel entered into a loan agreement with Meyidi for the purchase price of the business. The loan agreement was personally guaranteed by Mr and Mrs Touloumdjian and secured by mortgages over two properties. Taniel made a number of interim interest payments, but neither Taniel, nor Mr and Mrs Touloumdjian, have repaid the capital and remaining interest. Meyidi brought these proceedings to recover the debt and enforce its mortgage security.
Taniel counterclaimed against Meyidi for misrepresentations and fraud. The fraud alleged by Taniel is that Meyidi misrepresented the takings of the business in a two week trial period preceding the settlement. It was a condition of the business sales contract that the café achieve a certain amount of sales in the trial period. Taniel alleges that the misrepresentations and fraud induced it to settle on the contract.
Held:
(1) Meyidi substantially misrepresented the takings in the trial period.
(2) The defendants would not have proceeded with the purchase but for the misrepresentation.
(3) Plaintiff’s claim dismissed.
(4) On the defendants’ counterclaim, the business sales contract, the guarantees and supporting mortgages are set aside on the condition that the defendants pay to the plaintiff the fair value of the plant and stock purchased on settlement.
Trade Practices Act 1974 (Cth) s 52, s 87; Fair Trading Act 1987 (SA) s 56, s 85, referred to.
Magill v Magill (2006) 226 CLR 531, considered.

MEYIDI PTY LTD v TOULOUMDJIAN & ORS
[2013] SASC 146
Civil

KOURAKIS CJ: The plaintiff, Meyidi Pty Ltd (“Meyidi”), operated the café business known as Taste on Victoria (Taste Café) from 2004 until 3 April 2009. The business was operated on the ground floor of premises at 195 Victoria Square. Mr and Mrs Sarris are the sole directors and shareholders of Meyidi. By a contract of sale dated 4 March 2009 (the business sale contract), Meyidi contracted to sell the business to the defendants, Mr and Mrs Touloumdjian, or such person as may be nominated by them. In due course they nominated the third defendant, Taniel Pty Ltd (“Taniel”). Taniel operated the business from 6 April 2009 until it closed the business down in December 2010 after making arrangements with the landlord for the premises to be leased to others.
The purchase price of the business was $134,000, of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2013] SASC 146
Decision Date: 13 September 2013

CaseChat Overview and Summary

Meyidi Pty Ltd, the plaintiff, sought to enforce a business sales contract against the defendants, Touloumdjian and his wife. The dispute centred around the alleged misrepresentation of the café's takings during a trial period before the sale, which led the defendants to cancel the purchase. The case was heard in the Supreme Court of South Australia. The central legal issues revolved around whether the plaintiff had substantially misrepresented the takings during the trial period, and if this misrepresentation influenced the defendants' decision not to proceed with the purchase. Additionally, the court had to determine the appropriate remedy, if any, for the alleged misrepresentation.

The court found that the plaintiff substantially misrepresented the takings during the trial period, as evidenced by the discrepancies between the provided BAS statements and the actual cash register records. The court was particularly swayed by the unconvincing testimony of Mr Sarris, who the court did not believe had inadvertently understated the takings. The court also noted that the sales figures appeared to have been deliberately understated or overstated. The court concluded that the defendants would not have proceeded with the purchase had they known the true takings, thus satisfying the requirement for misrepresentation to be a material factor in the decision-making process.

In light of the findings, the court dismissed the plaintiff's claim for enforcement of the business sales contract. Instead, the court set aside the business sales contract, guarantees, and supporting mortgages on the condition that the defendants pay the plaintiff the fair value of the plant and stock purchased on settlement. This outcome reflected the court's aim to provide a fair resolution to both parties, taking into account the substantial misrepresentation and its impact on the defendants' decision-making process.

Orders

Orders of the court

Held:

(1) Meyidi substantially misrepresented the takings in the trial period.

(2) The defendants would not have proceeded with the purchase but for the misrepresentation.

(3) Plaintiff’s claim dismissed.

(4) On the defendants’ counterclaim, the business sales contract, the guarantees and supporting mortgages are set aside on the condition that the defendants pay to the plaintiff the fair value of the plant and stock purchased on settlement.

Background

Background to the litigation

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Evidence

Evidence Before The Court

I record here that the way in which Mr Sarris gave the above testimony was unconvincing. I do not accept that Mr Sarris inadvertently understated the takings to such a large extent. Either the BAS statements or the weekly accounting sheets[6] truly represent the takings of Taste Café in that period. I do not accept that mistake accounts for the difference between the two. One or the other has been deliberately understated or overstated. In that respect, I observe that if exhibit P14 accurately records the takings, the March quarter trading rebounded significantly to the 2007 level after years of declining sales. I will return to this question after a consideration of the other evidence which bears on the issue.[6] Exhibit P14 and P18.The Trial Period – Evidence of Mr Touloumdjian Mr Touloumdjian is a 61 year old Armenian. In 1987, he migrated to Australia from Egypt where he had worked as a professional musician. When he first arrived in Australia Mr Touloumdjian worked as a salesman in a hardware shop. He had to stop that job when he suffered a heart attack. After he recovered, he opened a music school and taught the playing of drums. Mr Touloumdjian and his wife later bought a small takeaway pizza and pasta business. They built up the business before selling it at a substantial profit. Mr Touloumdjian and his wife then took on a pizza franchise in Elizabeth which was not as successful. In 2006, Mr Touloumdjian’s wife purchased the business known as Allegro Pizza and Pasta (Allegro) in the Southern Cross Arcade in Adelaide. Whilst operating Allegro, Mrs Touloumdjian noticed an advertisement for the sale of Taste Café and contacted the sales agent, Mr Said. After some negotiations, the business sales contract was executed on 4 March 2009. Mr Touloumdjian testified that he went to Taste Café on the morning of Tuesday, 10 March 2009, the first day of the original trial period. Mrs Sarris opened the till with a float of $1000 however most of that money was kept in a metal box, and an amount of between $100 and $450 was put in the cash register itself. During the course of the day Mr Touloumdjian noticed that Mrs Sarris and her staff did not use the cash register to record sales. Mr Touloumdjian testified that when he raised that with Mrs Sarris she told him that she did not use the cash register to record sales. Mr Touloumdjian testified that he responded that he could not buy a business without a cash register record of sales. Mr Touloumdjian gave evidence that he decided that he would not go ahead with the purchase of the business because the sales were not recorded. According to Mr Touloumdjian, he then cancelled the trial because he was not confident that he would be able to accurately monitor the sales through his presence in the shop alone because there were times when he would leave Taste Café to help his wife at Allegro. He explained that there were also other occasions when he left the café for his personal convenience. Mr Touloumdjian either did not return to Taste Café on Wednesday morning or left at some point during the day.

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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