Mihnyak, G v Campbell, Mark

[1997] FCA 181

NOT FOR GENERAL DISTRIBUTION
NO QUESTION OF GENERAL PRINCIPLE

IN THE FEDERAL COURT OF AUSTRALIA )
  )

NEW SOUTH WALES DISTRICT REGISTRY )         No NG 99 of 1997
  )

GENERAL DIVISION                 )

BETWEEN:     GEORGE MIHNYAK AND AGNES MIHNYAK

Applicants

AND:     MARK CAMPBELL AND FRIEDA CAMPBELL

Respondents

CORAM:LINDGREN J

PLACE:SYDNEY

DATE:19 May 1997

REASONS FOR JUDGMENT

(ex tempore)

INTRODUCTION
There are before the Court two motions, both brought by Mr and Mrs Mihnyak. They arise out of a judgment given against them by Davies J on 19 December 1996 for a sum of $242,459 including interest. That judgment represented an award of damages arising out of a sale by Mr and Mrs Mihnyak to Mr and Mrs Campbell of a business known as “The Lemon Grove Chickens” carried on at Chatswood (“the Business”).

By the first notice of motion, filed on 11 February 1997, Mr and Mrs Mihnyak seek an extension of time within which to file a notice of appeal from the judgment. By the second notice of motion, filed on 12 May 1997, Mr and Mrs Mihnyak seek an order staying execution of the judgment pending the outcome of their contemplated appeal. The application for the stay has been prompted by the fact that Mr and Mrs Campbell have caused a bankruptcy notice to be issued addressed to Mr and Mrs Mihnyak. These Reasons for Judgment relate to both motions.

On the return date of the former notice of motion, and for some time subsequently, Mr and Mrs Mihnyak were not legally represented. They have now been represented by Ms Keys of counsel. She has said everything that could be said on their behalf, and the Court has been considerably assisted by the submissions, oral and in writing, that she has made. 

FURTHER BACKGROUND
As I said, the judgment of Davies J was delivered on 19 December. According to an affidavit of Mr Mihnyak he received a copy of his Honour’s Reasons for Judgment on 24 January 1997. The time for appeal expired on 3 February 1997. As I have also indicated, the notice of motion seeking an extension of time was filed on 11 February 1997.  During the currency of that motion, Mr and Mrs Campbell caused the bankruptcy notice to be issued on 21 March 1997. That notice was served on Mr and Mrs Mihnyak on 23 March.

The time for compliance with the bankruptcy notice expired on 14 April. On that date, Mr and Mrs Mihnyak filed an application for an extension of time for compliance. The Registrar extended that time until 28 April. On that date, the Registrar stood over the application for the extension of time for compliance until tomorrow, 20 May, and extended that time also until tomorrow.

APPLICATION FOR LEAVE TO FILE NOTICE OF APPEAL
Order 52, sub-r 15 (1) of the Federal Court Rules provides that a notice of appeal must be filed and served within 21 days after, relevantly, the date when the judgment appealed from was pronounced, or:

“within such further time as is allowed by the Court or a Judge upon application made by motion upon notice filed within the period of 21 days referred to ...”

No notice of motion was filed within the period of 21 days. However, sub-r 15 (2) of O 52 provides:

“Notwithstanding anything in the preceding sub-rule, the Court or a Judge for special reasons may at any time give leave to file and serve a notice of appeal.”

It is under that sub-r 15 (2) that the first motion brought by Mr and Mrs Mihnyak must be considered.

It is therefore incumbent upon Mr and Mrs Mihnyak to demonstrate "special reasons" why an extension of time should be granted. However, the extent to which they are late is surely a matter relevant to the exercise of the Court’s discretion. In this case they were only eight days late. 

The evidence in relation to the lateness is not, however, entirely satisfactory. It is found in a paragraph of an affidavit of Mr Mihnyak sworn 10 February 1997 as follows:

“I needed the written judgment to consult community service legal aid and understand what evidence and circumstances were considered in the case.  Finally I needed to carefully read the judgment to find whether or not there is ground for appeal.”

While the matters referred to in this paragraph may be accepted, there is no account of what occurred between 24 January, when the copy of the Reasons for Judgment was received by Mr Mihnyak, and 11 February, when the Court was first approached. Notwithstanding this, on any reckoning the lateness was not great and if it were the only matter to be considered, I might well grant an extension of time. However, that issue is not the only matter to be considered.  The question whether the proposed grounds of appeal are arguable is also relevant to the exercise of the discretion. In this respect, it is necessary for me to refer to the reasons for judgment of Davies J and to the factual background of the case generally.

REASONS FOR JUDGMENT OF DAVIES J AND FACTUAL BACKGROUND GENERALLY
In the earlier proceeding, NG 483 of 1995, Mr and Mrs Mihnyak were the first and second respondents respectively while Mr and Mrs Campbell were the first and second applicants. As I have indicated, Mr and Mrs Mihnyak were the sellers of the Business and Mr and Mrs Campbell were the buyers.  The fourth respondent was Arena Business Connection Pty Limited, which apparently traded under the name "The Business Connection" (“the Agent”). The third respondent, Anthony Arena, was a director of that company.  The Agent was retained by Mr and Mrs Mihnyak to sell the Business.

It is not necessary for me to give a detailed account of the Reasons for Judgment of Davies J. They speak for themselves. However, I must give at least an outline.

The Business involved the wholesale and retail sale of chickens and like goods. In November 1994 Mr Mihnyak put the Business on the market. Davies J found that at about that time there was brought into existence a profit and loss statement for the year ended 30 June 1994. This document, which became referred to as "Account B", proved to be of critical significance in the case.

On the basis of Account B, the Agent prepared what was described as a "Business Profile". The Business Profile gave certain particulars of the Business and stated an asking price of $159,000. It contained information taken from Account B.  By way of illustration, in Account B the cost of purchases for the year ended 30 June 1994 was shown as $514,800 while the Business Profile showed the cost of goods as $9,900 per week - the same amount.  A copy of the Business Profile was supplied by the Agent to the Campbells. On 31 January 1995 they entered into the contract to purchase the Business. The price was $146,000, which Davies J thought may well have been the price of $159,000 less the value of a certain motor vehicle which they did not take over.

There was a trial of the Business by Mr and Mrs Campbell over a three week period commencing 13 February 1995.  The takings during that period were set out on a document which was initialled on behalf of both parties. After the trial period, settlement occurred. After the Business came into the hands of Mr and Mrs Campbell, it deteriorated substantially.

There were three relevant accounts in evidence before the trial Judge. Account A was the profit and loss account for the year ended 30 June 1993 which had been the basis of the income tax return of Mr and Mrs Mihnyak for that year and which was prepared by their accountant.  Account B was the account to which I have already referred. Davies J found that Account B had been brought into existence by Mr Mihnyak in late November 1994. Account C was the account for the year ended 30 June 1994 as prepared by Mr and Mrs Mihnyak’s accountant and became the basis of their income tax return for the year ended 30 June 1994.  That income tax return was signed on 27 March 1995, after the sale of the Business had been settled.

It is not necessary for me to set out a detailed comparison of the various accounts.  It is, however, perhaps noteworthy that Account A showed a net profit of the Business for the year ended 30 June 1993 of $22,742.80; Account C showed a net profit of the Business for the year ended 30 June 1994 of $26,217.01; while Account B, the one on which the Business Profile was based, showed a net profit for the year ended 30 June 1994 of $111,953.58 - more than four times the comparable amounts in Accounts A and C.

The Reasons for Judgment of Davies J record that Mr Mihnyak denied knowledge of Account B and said that he saw it only after Mr and Mrs Campbell had commenced the proceeding in this Court. He said that he had obtained a copy from the Agent. However, his Honour was satisfied that Mr Mihnyak had prepared Account B and had provided it to a Mr Taktikos of the Agent for the purpose of informing him of the state of the Business and equipping him with information to be supplied to prospective purchasers.

Before Davies J, the parties accepted that the figures in Account C, that is to say, those prepared by the accountant for the year ended 30 June 1994, were correct, and that Account B was incorrect. His Honour found that because the Business Profile contained figures which reflected those in Account B, it misrepresented the Business.

The value of the Business was substantially less than what Mr and Mrs Campbell paid for it. In fact, preferring the approach of an expert witness, Mr J N Sefton, called by Mr and Mrs Campbell, to that of another expert, Mr C A Jugmans, called by the Agent, Davies J concluded that the Business was worth only something between $35,555 and $40,000. It will be appreciated that on the basis of a value of $40,000, if one were to apply, as the measure of damages, the measure of “price paid minus value received”, Mr and Mrs Campbell’s loss would have been $106,000.

In his Reasons for Judgment, Davies J referred to difficulties caused to Mr and Mrs Campbell arising from factors other than the difference between the actual cost of goods and the cost of goods as represented.  I need not give a detailed account of those other factors.

Counsel for the Agent submitted before his Honour that there had been no reliance by Mr and Mrs Campbell on the information in the Business Profile.  He submitted that Mr and Mrs Campbell had carried out and relied upon their own analysis. His Honour assessed the evidence of Mr and Mrs Campbell and thought that although it was, in some respects, "muddled or confused", they were "honest witnesses".  His Honour considered various documents which had been given to them by a Mr McJannet of the Agent.  He accepted that Mr and Mrs Campbell had not received Account B prior to making the purchase.  He accepted that Mr Campbell was supplied with a copy of Account B some weeks after completion of the purchase.

In relation to the question of other documents inspected, Davies J concluded that it was not clear what documents were inspected or precisely what was done with them. Importantly, however, he accepted the evidence of Mr Campbell that the figures in the Business Profile were always a factor operating on his mind.  He said:

“I have formed the view that Mr and Mrs Campbell were influenced by the business profile.  The figures there stated were stated so as to interest a prospective purchaser and they were no doubt intended to keep a prospective purchaser interested.  It was the business profile which set out the details of the business and enabled a comparison to be made with the price.”(Reasons for judgment, page 18).

His Honour also said:

“I have concluded that Mr and Mrs Campbell took the information in the business profile into account and relied upon it when they agreed to pay the purchase price of $146,000 and, indeed, that it was the prospect of obtaining the net profit as set out in the business profile which led them to agree to purchase the business and to pay that price.(Reasons for judgment, page 18).

Because his Honour found that Mr Mihnyak had prepared Account B and had given it to the Agent for use in promoting the sale of the Business, and because his Honour also found that, in effect, the Agent functioned as a conduit or channel through which that information was to be supplied to prospective purchasers, he concluded that there was a contravention by Mr and Mrs Mihnyak of s 42 of the Fair Trading Act 1987 (NSW).

His Honour held that the Agent had merely passed on the information supplied to it by Mr Mihnyak for what it was worth, and did not independently make a representation to the effect of the matters stated in the Business Profile.  In the result, he concluded that there should be judgment against Mr and Mrs Mihnyak but that the claim against the Agent should be dismissed.

On the question of damages, his Honour accepted that the usual starting point for the measure of damages in such a case as the present one, was the difference between the amount which the purchasers outlaid ($146,000) and the value of what was received for that price (say, $40,000).  However, he noted that in this case the Business had "unravelled rather rapidly when Mr and Mrs Mihnyak left it" because "so much had depended upon their work, their expertise and their reputation" (both, Reasons for Judgment, at 25). In fact the deterioration of the Business throughout 1995 was substantial, and Mr and Mrs Campbell sold it on 15 December 1995 to a person named Sharon Tate for only $13,800.

His Honour's approach to the assessment of damages was to allow to Mr and Mrs Campbell their financial losses in 1995 totalling $198,967.  To that amount he added interest in accordance with the Rules of the Supreme Court of New South Wales, giving the total of $242,459, for which judgment was entered.  There were particular items which his Honour disallowed but I need not deal with these.

His Honour ordered Mr and Mrs Mihnyak to pay Mr and Mrs Campbell’s costs, including the costs payable by them to the successful Agent.

PROPOSED GROUNDS OF APPEAL

The proposed grounds of appeal are as follows:

“2.(a)His Honour Justice Davies erred in finding that the Appellants breached section 42 of the Fair Trading Act 1987 (NSW) because they had prepared a document referred at as ‘account B’ and because that account was misleading:

(i)His Honour erred in assessing the statements made in ‘account B’ in isolation of the course of negotiations associated with the sale and purchase of the business known as ‘The Lemon Grove Chickens’.

(ii)His Honour erred in failing to assess the statements made in ‘account B’ in the overall context of the negotiations for the sale/purchase of the business known as ‘The Lemon Grove Chickens’.

(iii)The Respondents did not demonstrate that they had relied upon the statement made in ‘account B’ to the extent that such reliance supplied a sufficient causal connection between that statement and the loss/damage sought to be recovered by the Respondents.

(iv)His Honour erred in failing to find that ‘account B’ was an opinion/estimation/ prediction because the fact, in comparison to which ‘account B’ was found to be incorrect, that is ‘account C’, did not come into existence until about 27 March 1997, that is after the settlement had taken place in relation to the sale/purchase of the business known as ‘The Lemon Grove Chickens’.

(v)Consequent upon subparagraph 2(a)(iv) above, the Respondents did not demonstrate that the Appellants did not hold the opinions/ estimations/predictions expressed in account B, or alternatively, that there was no reasonable basis upon which the Appellants could have come to the opinions/estimations/ predictions expressed in account B.

(b)If his Honour Justice Davies did not err as alleged in subparagraph 2(a) above, he erred in assessing the amount of damages raising from the breach of section 42 of the Fair Trading Act 1987 (NSW):

(i)His Honour failed to take account of the difference between the estimated value of the business known as ‘The Lemon Grove Chickens’ as at the date of sale/purchase and the price actually paid by the Respondents.

(ii)His Honour took account of irrelevant considerations in calculating the damages arising from the breach of section 42 of the Fair Trading Act 1987 (NSW), and specifically losses incurred by the Respondents in conducting the business.”

REASONING
By reference to the proposed grounds of appeal it is now possible to consider the submissions which have been made on behalf of Mr and Mrs Mihnyak, not for the purpose of deciding whether error is shown, but for the purpose of deciding whether an error is arguably suggested which would warrant allowing an appeal by them to go forward.

It is possible to deal with grounds 2 (a) (i) and (ii) together. I have considered closely what has been said in the written submissions but do not think that it is shown, even arguably, that the errors of law propounded in fact occurred. His Honour did not assess the statements made in Account B in isolation or otherwise than in the overall context of the negotiations for the sale and purchase of the Business.  His Honour saw the witnesses and accepted that Mr and Mrs Campbell continued to be influenced by those figures which found their place in the Business Profile and which had been taken by the Agent from Account B. In substance Mr and Mrs Mihnyak’s submission is a submission that his Honour should have found that Mr and Mrs Campbell were not induced to buy by the figures in the Business Profile and that they were so induced, instead, by other considerations, such as the three week trial period or the documents supplied to them by Mr McJannet. But such a factual issue was a matter for the trial Judge, not for an appellate court. The submission also does not allow for the fact that it is beside the point that Mr and Mrs Campbell may have been partly influenced, in deciding to purchase, by considerations in addition to the figures in the Business Profile.

Ground 2 (a) (iii) is of a similar order.  Again, what the ground attacks is the trial Judge’s acceptance of the evidence of Mr and Mrs Campbell that they relied on the figures in the Business Profile derived from Account B. 

Ground 2 (a) (iv) is of a rather different kind.  However, it discloses, I think, a misunderstanding of the evidence.  Account B did profess to be an historical statement, in the sense of a statement of past financial events, as distinct from a mere opinion, estimation or prediction. Davies J found that it had been brought into existence in late November 1994. It related to a period of twelve months ended on 30 June 1994.  The fact that the final profit and loss account for that year did not come into existence until about March 1995 is irrelevant. 

The ground of appeal seems to suggest that because the final version of the profit and loss statement remained to be finalised by the accountant as at the time, in late November 1994, when Mr Mihnyak gave Account B to the Agent, Account B must have been understood by all concerned as no more than an opinion, estimation or prediction. This argument is clearly not sustainable.  In passing, it might be noted that it would seem to be somewhat difficult, in any event, to view Account B as an opinion, estimation or prediction reasonably arrived at of what the final figures would prove to be for the year ended 30 June 1994, in view of the gross disparity between the figures in it and the true figures for that year which came to be expressed in the final profit and loss statement prepared for that year by the accountant.

Ground 2 (a) (v) falls with ground 2 (a) (iv) dealt with above. The fact that Account B purported to be a statement of past fact, even if there were some scope for viewing the figures in it as approximations, renders irrelevant the complaint that Mr and Mrs Campbell “did not demonstrate that {Mr and Mrs Mihnyak} did not hold the opinions/estimations/predictions expressed in Account B or alternatively, that there was no reasonable basis on which they could have come to the opinions/estimations/ predictions expressed in Account B.”

I come next to the question of quantum of damages.  Ground 2(b) addresses this.  Davies J acknowledged that the starting point for the measure of damages in a case such as the present one is the price paid minus the value of the property purchased. Mr and Mrs Mihnyak submit that it was an error for his Honour not to use that test.  I think that it is clear that it was not such an error. The prima facie measure is not required, as a matter of law, to be applied in all cases of sale and purchase. The measure is readily applicable in a case where the thing bought can be immediately re-sold and where it is reasonable to expect the purchaser to have effected such an immediate re-sale, and thereby converted into cash the value of the thing bought.

But the present case was, in the opinion of the trial Judge, one where it would have been unreasonable to have required Mr and Mrs Campbell, at their peril, immediately following the making of the purchase, to sell the Business for, apparently, some $40,000.  I do not think that it is shown, even arguably, that his Honour was in error in forming that opinion.  Although his Honour does not say in so many words that it would be unreasonable to apply the "price paid minus value received" measure, it is clear that this is what he thought, since he referred to that measure as the starting point and went on to explain why a different measure, namely the losses incurred in 1995, should be applied. In many, perhaps most, cases in which a person is induced by misrepresentation to purchase an active business, the “amount paid minus value received” measure will not be applicable without some qualification.

What I have just said, in substance disposes of ground 2 (b) (ii) as well.  The approach taken by his Honour was that of adding up the outgoings from the time of purchase down to the time, in December 1995, when the Business was sold to Ms Tate, and deducting from the total the incomings. His Honour treated the amounts paid out in the purchase and running of the Business as money which Mr and Mrs Campbell had been induced by the misrepresentation to pay away, and deducted all amounts which they had received in the running of the business. I do not think that an arguable error is shown in this respect either.

The consequence of the foregoing conclusions is that both motions must be dismissed. It is perhaps worth noting that even if I had allowed an extension of time for the lodging of a notice of appeal limited to the question of the assessment of damages, I would have done so on terms that Mr and Mrs Mihnyak immediately pay damages based on the measure which they say is the correct measure, that is, they would have had to pay $146,000 minus $40,000 ($106,000) plus interest. Perhaps this would not have been of much comfort to them.

CONCLUSION
The result of the foregoing reasons is that the motion for leave to file and serve a notice of appeal out of time brought by notice of motion filed on 11 February 1997 is dismissed with costs, and the motion for a stay of execution of the orders made by Davies J on 19 December 1996 brought by notice of motion filed on 12 May 1997 is also dismissed with costs.

I certify that this and the preceding 17 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

Associate:

Dated:28 May 1997

Heard:       8, 13 May 1997

Last
submission
received:     16 May 1997

Place:       Sydney

Decision:     19 May 1997

Appearances:  Ms J Keys of counsel instructed by the applicants appeared for the applicants

Mr N Potts of counsel instructed by White Barnes appeared for the respondent.