FEDERAL MAGISTRATES COURT OF AUSTRALIA
| NALANIA PTY LTD & ANOR v LONORI PTY LTD & ANOR | [2005] FMCA 1 |
| TRADE PRACTICES – Misleading and deceptive conduct – alleged misrepresentations as to commission income of a real estate business prior to the sale of the business. |
Fair Trading Act 1987 (NSW)
Federal Magistrates Act 1999 (Cth), s.77
Federal Magistrates Court Rules 2001 (Cth)
Real Property Act 1900 (NSW)
Trade Practices Act 1974 (Cth), ss.52, 59, 82
Brown v Jam Factory Pty Ltd (1981) 53 FLR 340
Crocodile Marketing Ltd v Griffith Vintners Pty Ltd (1989) 28 NSWLR 539
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1998) 39 FCR 546
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281
Neilsen v Hempston Holdings Pty Ltd (1986) ATPR 40-686
Phillips v Ward [1956] 1 All ER 874
Rentokil Pty Ltd v Channon (1990) 19 NSWLR 417
Tobacco Institute of Australia v AFCO (1993) 15 ATPR 41-199
Watts v Morrow [1991] 4 All ER 937
First Applicant: Second Applicant: | NALANIA PTY LTD IAN CARLING GREY |
| First Respondent: Second Respondent: | LONORI PTY LTD LAWRENCE KEITH CUNNINGHAM |
| File No: | SZ1979 of 2003 |
| Delivered on: | 7 February 2005 |
| Delivered at: | Sydney |
| Hearing dates: | 26 & 27 July, 18 August, 13 & 14 October 2004 |
| Date last submissions received: | 10 December 2004 |
| Judgment of: | Driver FM |
REPRESENTATION
| Solicitors for the Applicant: | Mr B Leybourne Leybourne Legal Group |
| Counsel for the Respondent: | Mr A Justice |
| Solicitors for the Respondent: | O Neimanis & Co |
ORDERS
The first respondent shall pay damages of $85,000 to the applicants plus pre-judgment interest from 30 December 2002 at the rate of 10.5 per cent.
The first respondent shall pay the applicants’ costs of the proceedings in accordance with the Federal Magistrates Court’s scale of costs.
The application against the second respondent is dismissed.
The applicants shall pay the second respondent’s costs of the proceedings in accordance with the Federal Magistrates Court scale of costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ1979 of 2003
| NALANIA PTY LTD |
First Applicant
IAN CARLING GREY
Second Applicant
And
| LONORI PTY LTD |
First Respondent
LAWRENCE KEITH CUNNINGHAM
Second Respondent
REASONS FOR JUDGMENT
Introduction and background
The first applicant (Nalania) is a company which owned and operated a real estate business at St Marys known as Real Estate One. The second applicant (Mr Grey) is the managing director of the company. The first respondent (Lonori) is a company which sold the business to Nalania in September 2002. The second respondent (Mr Cunningham) is the sole director of Lonori. The applicants claim damages under the Trade Practices Act 1974 (Cth) (“the TPA”) arising from alleged misleading and deceptive conduct by the respondents prior to the sale of the real estate business. A claim for an order requiring the respondents to re-purchase the business for the sale price was not pressed.
The applicants also sought interim orders but that part of the application was not pressed.
The applicants assert that the second applicant (Mr Grey) replied to an advertisement for the sale of the real estate business in St Marys in April or May 2002. The business was one of two real estate agencies operated by the first respondent. The other was at Erskine Park. Both traded under the same name of “Real Estate One”. Mr Grey asserts that in about August 2002 he was provided with information about the St Marys office, in particular relating to staffing and personnel, commission earnings of the office and expense information. Mr Grey asserts that at this time he was given detailed commission earnings information for the period from February 2001 to August 2002. The information forms annexures A to F of an affidavit by Mr Grey filed on 15 March 2004. The applicants assert that the representations contained in those documents were false, misleading and deceptive and induced Nalania to proceed to purchase the business. Essentially, it is alleged that the respondents misrepresented the value of the business.
Mr Grey also expresses concern about the fact that he was not aware, prior to purchasing the business, that the then office manager, Mr Michael Bevan, had an interest in the first respondent which was not disclosed. This assertion is set out in the outline of case document filed on behalf of the applicants on 15 July 2004. However, the crux of the case centres upon the alleged misrepresentations as to the value of the business.
Mr Grey also asserts a breach of contact. However, there was no attempt in his application to invoke the Court’s accrued jurisdiction.
The respondents correctly assume that the applicants’ case is founded upon an asserted breach or breaches of s.52 of the TPA. Mr Leybourne, for the applicants, also sought to rely on s.59(2) of the TPA, however for reasons that appear later that latter section is inapplicable. The respondents accept that the document setting out the asserted representations annexed to Mr Grey’s affidavit of 15 March 2004 was indeed given to him prior to the sale of the real estate business at St Marys, however they say that the representations contained in the documents are accurate. They deny that there is anything misleading or deceptive in the representations made.
Alternatively, the respondents assert that the Court does not have jurisdiction because the representations were not made by a corporation. They say that the representations were made by Mr Cunningham in a personal capacity. The applicants have made no claims against Mr Cunningham in these proceedings under the Fair Trading Act 1987 (NSW) (“the Fair Trading Act”).
For completeness, the respondents deny any liability arising out of the non disclosure of Mr Bevan’s interest in the first respondent and deny any breach of contract. The respondents also assert that the Court has no jurisdiction to determine a breach of contract claim. That would be incorrect if the accrued jurisdiction of the Court had been invoked, but it has not been invoked. The originating process was expressly limited to a claim under the TPA. No amended application has been filed. Neither has any statement of claim been filed, which I would regard as essential to an attempt in this case to invoke the Court’s accrued jurisdiction.
The evidence
The applicants rely upon two affidavits by Mr Grey made on 15 March 2004 (with substantial annexures) and 2 July 2004. The applicants also rely upon an affidavit by Donald Herbert MacKinnon made on 14 March 2004. Mr MacKinnon refers to a number of annexures to Mr Grey’s first affidavit.
Mr Leybourne also tendered (exhibit A2) the contract for the sale of the business dated 3 September 2002. Attached to that copy of the contract is another copy of the asserted misrepresentations.
Mr Grey deposes that in about April or May 2002 he answered an advertisement in the Sydney Morning Herald for the sale of the Real Estate One St Marys real estate agency for $85,000, together with the office premises at 13/178 Queen Street, St Marys for an additional $190,000. He deposes that in about August 2002 he was provided by Lonori with financial data concerning commission income of the St Marys agency which forms annexures A to F to his affidavit.
Mr Grey deposes that he understood at the time that the Erskine Park and the St Marys offices of Real Estate One were both owned and operated by Lonori.
Mr Grey deposes that he had a discussion with Mr Cunningham in August or early September 2002 concerning the financial data forming annexures B to F of his affidavit. Mr Grey deposes that Mr Cunningham told him that the monthly operating expenses of the St Marys office were about $15,000 and that Mr Cunningham agreed with him that, based on the figures, he could expect a profit of around $10,000 per month. Mr Grey deposes that, based upon this conversation, he decided to proceed to purchase the business and office premises.
Mr Grey deposes that he assumed control of the agency on 20 September 2002 as a going concern with all existing staff in place. He deposes that he did not know at that time that Mr Bevan was a beneficiary of the sale of the business. He deposes that about one month after he assumed control he had to terminate Mr Bevan’s employment due to non attendance at the office and incompetence. He deposes that he spoke to Mr Cunningham about the termination of Mr Bevan shortly afterwards and that Mr Cunningham expressed a perceived obligation to take Mr Bevan into the Erskine Park office.
Mr Grey deposes that since 20 September 2002 he had examined the office records of the St Marys agency which indicated to him that the performance figures given to him by Mr Cunningham (forming annexures A to F of his affidavit) were false. He deposes as to attempts he made to gain access to trust account records of the St Marys office in order to verify his concerns.
Mr Grey further deposes that about the end of July 2003 Lonori and Mr Cunningham refused to pay conjunction commissions Mr Grey says were due to the St Marys office as part of the terms of the sale of the office. He deposes that he asserted in writing a breach of contract. On 10 January 2004 Mr Grey wrote directly to Mr Cunningham and Lonori informing them that the St Marys office was now closed and alleging a breach of contract.
Mr Grey deposes as to the efforts he had undertaken since 30 January 2004 to obtain information concerning the conjunction sales arrangements between the St Marys and Erskine Park offices. He deposes as to his investigations and to his conclusions formed concerning the accuracy of the representations made to him concerning the commission sales figures achieved by the St Marys office prior to the sale to Nalania.
Mr Grey deposes that about a month before he settled the purchase of the St Marys business he sought a special condition in the contract which would have guaranteed a minimum commission income of $22,000 per month. He deposes that Mr Cunningham rejected this proposal. He deposes that he accepted this rejection on the basis of Mr Cunningham’s view that the relationship between them depended on trust.
In his second affidavit Mr Grey responds to an affidavit of Heath Michael Bevan sworn on 21 May 2004.
In his affidavit Mr MacKinnon deposes that he was appointed as licensee in charge of Real Estate One, St Marys when it commenced operations in February 2001. He became aware of the proposed sale of the St Marys office two or three months before it was sold. He deposes as to a conversation he had with Mr Grey and Mario Stevens just before Mr Grey took over the office.
Mr MacKinnon deposes as to a conversation involving him, Mario Stevens and Mr Cunningham just before Mr Grey took over the office. He deposes that Mr Cunningham asked him and Mario Stevens not to mention to Mr Grey that Mr Bevan was a part owner of Lonori and thus the St Marys business. Both agreed.
Mr MacKinnon deposes as to a conversation he had with Mr Bevan about two weeks after Mr Grey took over the office. He deposes that Mr Bevan told him that he wanted to do more work on developments “up the coast” and that Mr Bevan invited him to take over the management of the office from him. Mr Bevan offered Mr MacKinnon $1,100 per week and that there was a guaranteed minimum commission turnover of $22,000 per month.
Mr MacKinnon deposes that about five months after Mr Grey took over the St Marys office he became aware of the sales commission figures which were given to Mr Grey and which form annexures A to F of Mr Grey’s first affidavit. Mr MacKinnon deposes that the purported commission income in annexure B of $3,000 in February 2001 is “highly unlikely” as it did not appear in the trust account records or the office settlement correspondence records.
I permitted Mr Leybourne to lead some additional evidence from Mr Grey and Mr MacKinnon. This was in part to deal with asserted prejudice suffered by the applicants by reason of the late filing of affidavits by the respondents. It was also to give Mr Leybourne the opportunity to deal with any disadvantage suffered by the applicants by reason of their affidavits being prepared without the benefit of legal assistance (before Mr Leybourne was instructed to act).
In examination-in-chief Mr Grey asserted that the misrepresentations that he relies upon were annexed to the contract and formed part of the contract between the parties. He later retreated from that position somewhat. It was not clear whether the documents containing the asserted misrepresentations were annexed to the contract at the time he signed it but he maintained that they were provided to him shortly before he signed the contract. Mr Grey said that he regarded the “performance figures” given in the document for the St Marys office as fundamental to assess the business viability of the office. He said that he thought at the time that the figures showed that the business was a “good proposition”. He intended to be a passive investor (although he was a registered real estate agent) and wanted to buy a going concern. He had no intention to change staff. Mr Grey stated that initially he only bought the real estate from which the business operated. Later, when he was able to access more funds, he paid for the business itself. Mr Grey stated that after he took over the business he became concerned about poor sales performance. He asserted that he had been “guaranteed” $22,000 per month revenue from commissions. In the first month after he took over revenue was nil and in the following month it was $20,000. He said that about a month after he took over the business he began checking sales records. He stated that he began preparing some of the annexures to his first affidavit in an effort to understand the apparent discrepancy between the sales performance asserted in the representations to him and the sales performance disclosed by the office records he looked at following the purchase. Annexures UA and UA1 provide in graph form a comparison between the various sets of records Mr Grey examined.
Mr Grey said that he confronted the second respondent (Mr Cunningham) with his concerns in March or April 2003 in Mr Cunningham’s office at Erskine Park. No one else was present. The discussion between the two took place following an e-mail from Mr Grey to Mr Cunningham in which he set out some of his concerns. Mr Grey said that the meeting did not resolve the matter and that he then wrote a letter of demand, forming annexure P to his first affidavit. Mr Cunningham responded to that demand.
Mr Grey stated that the examination of the records by him led him to the view that the representations as to sales performance in the St Marys office given to him prior to the purchase of the business were false. In particular, he was concerned about so called “conjunction sales” between the Erskine Park and St Marys offices: annexure H to his first affidavit. Conjunction sales are sales of properties listed at one office but completed by a salesman at the other office. In those circumstances, sales commission is shared between the two offices. Annexure W to Mr Grey’s first affidavit is another example of his efforts to seek clarification. He said that he received no reply.
Mr Grey was asked about the role of the office manager. He said that the role was to work diligently to produce profits for the office. Mr Grey was dissatisfied with Mr Bevan’s performance. He was concerned when he discovered that Mr Bevan had a financial interest in the first respondent and was also concerned that Mr Bevan, in his view, was not working diligently on behalf of the St Marys business.
Mr Grey was asked about the conjunction sales referred to in paragraphs 13, 18, 22, 37, 46, 72, 73, 84, 96, 97, 129, 130, 131, 133, 145, 148, 149, 155, 158, 161, 164, 165 and 176 of Mr Bevan’s affidavit. Mr Grey stated that he believed that all of these sales were fictitious, with the possible exceptions of those referred to in paragraphs 131 and 149. He asserted that there were 26 fictitious sales because no file could be found relating to them.
In response to a question from me, Mr Grey agreed that sales appearing in the trust account records of the St Marys office (annexure TR to Mr Grey’s first affidavit) would be genuine sales of properties listed at the St Marys office. He stated that if no file could be found relating to an asserted sale then that would be a breach of the Real Property Act 1900 (NSW) which requires files to be created and kept for approximately seven years in relation to each and every property sold by a real estate agency.
Under cross-examination Mr Grey accepted that his belief in the 26 sales referred to being fictitious was based on the fact that the relevant files could not be found, rather than any positive knowledge on his part. Mr Justice tendered a bundle of documents apparently drawn from the records of the Erskine Park office (exhibit R1) which are said to evidence sales upon which the representations to Mr Grey were based. On being taken through those documents Mr Grey accepted that there appeared to be evidence of real sales of properties listed at the Erskine Park office referred to in paragraphs 18, 22, 37, 46, 72, 73, 130, 97 and 133 of Mr Bevan’s affidavit and that the sale referred to in paragraph 129 of his affidavit appeared to be a sale of a property listed at the St Marys office. He also accepted that because there appeared to be a trust account record of the sale referred to in paragraph 97 that was probably a St Marys listing and not an Erskine Park listing.
Mr Grey stated that he has been a registered real estate agent for around 30 years but, prior to purchasing the St Marys business, he had not conducted a real estate business for about 20 years. He described himself as a “passive investor”. He had bought real estate previously upon which businesses were run. He was aware of requisitions on title but was not aware that requisitions could be raised in respect to the sale of a business. Mr Grey said that he understood the concept of due diligence and denied that he had failed to conduct due diligence enquiries in respect of the purchase of the St Marys business.
Mr Grey conceded that, prior to purchasing the St Marys business, he was aware that the Erskine Park and St Marys offices were operated in tandem and that conjunction sales were conducted between them. He had been aware that the St Marys office was set up to expand the business of the Erskine Park office which was the main office operated by the respondents. He conceded that in August 2002, prior to the purchase of the business at St Marys, he did not specifically ask about conjunction sales. He said that he did not care where commissions came from, so long as there was commission income.
Mr Grey confirmed that he paid $85,000 for the business. He had met Mr Bevan before signing the contract and talked to him for about three quarters of an hour. He had not asked for a curriculum vitae or a resume from him. He had not asked him about his sales history. Mr Grey said that he expected to receive $10,000 a month clear from the business after expenses. He was aware of the expenses of the office and had worked out that commission income of at least $22,000 per month would be required to achieve his objective. Mr Grey conceded that he was aware that no income would be received for six weeks following the purchase and also accepted that he did not attempt to sell any properties himself until 2003. He said that this was consistent with his role as a passive investor. Mr Grey was adamant that the only reason he bought the business was that he understood that he was being guaranteed commission income of $22,000 per month or more. He accepted that there was no contractual guarantee. Mr Grey stated that in his view the commission income represented to him prior to the purchase was a complete misrepresentation of the commission income that could be derived from the business, in order to satisfy his requirement for commission income of at least $22,000 per month. Mr Grey claimed that he did not have enough knowledge of the business to ask more particular questions about sales prior to the purchase.
Mr Grey was asked about the apparent discrepancies between the commission income represented to him prior to the purchase, the trust account records and the St Marys office file records of sales. He said that ordinarily one would expect settlement sheets to disclose the same income as the trust account records. However, they did not match.
Mr Justice tendered at this point subpoenaed financial records for the St Marys office: exhibit R2.
Mr Grey accepted that the conjunction sales arrangement between the St Marys and Erskine Park offices was continued after he took over the business and also accepted that the Erskine Park business paid for the advertising of properties by the St Marys office. Nevertheless, he said that the St Marys office failed due to a lack of finance.
In response to questions from me, Mr Grey said that he decided to proceed with the purchase notwithstanding that the commission income representations made to him indicated that the income was declining prior to the sale to the first applicant. He said that he was optimistic that things would improve. Mr Grey also told me that he was aware that there were more conjunction sales than listings at the St Marys office (see annexure A to Mr Grey’s first affidavit) but said that his concern about the representations made to him is that, in his view, the asserted conjunction sales between the two offices are not genuine. Mr Grey believes that many, or most of the asserted conjunction sales are simply sales for which the commission income went entirely to the Erskine Park business.
In re-examination, Mr Grey explained his understanding of what conjunction sales were and stated that he would have expected to find evidence of conjunction sales in the records of the St Marys office. He found no such records to verify the conjunction sales asserted by the respondents. Mr Grey also stated that he believed he had an understanding or agreement with Mr Cunningham concerning the payment of stamp duty on the sale of a business Mr Grey sold in order to purchase the St Marys real estate business. He said that Mr Cunningham reneged on that agreement or understanding which dried up capital for the conduct of the St Marys business.
I also permitted Mr Leybourne to lead evidence-in-chief orally from Mr MacKinnon. He stated that he had no direct role in conjunction sales between the St Mary and Erskine Park offices but had a general knowledge of what records should exist in relation to such sales. He gave evidence of what records should be kept where conjunction sales are conducted between independent offices but, in response to a question from me, he stated that the St Marys and Erskine Park offices were not independent of one another. He believed that very few conjunction sales were made at the St Marys office.
Mr MacKinnon was shown Mr Bevan’s affidavit. In relation to paragraph 148 he stated that it was a legal requirement to retain files for six or seven years. In relation to paragraph 33 of that affidavit and page 14 of the annexures to it, Mr MacKinnon said there should be a record of the sale in the trust account records but there is no such entry. He stated that the absence of a trust account entry indicates that the sale was not a sale of a property listed at the St Marys office. Mr Leybourne showed Mr MacKinnon page 113 of exhibit R1. Mr MacKinnon stated that this proved that the relevant sale was the sale of a property listed at Erskine Park because the person “Marianne” referred to was employed at the Erskine Park office. Mr MacKinnon also claimed that the receipt reference given on the sales advice appearing at page 14 of the annexure to Mr Bevan’s affidavit was an Erskine Park reference.
Mr MacKinnon resumed his evidence on 18 August 2004. In completing his evidence in chief Mr MacKinnon stated that he had been the licensee in charge of the St Marys office prior to its sale. He was shown exhibit HMB1 to the affidavit of Mr Bevan. He stated that, if there was a conjunction sale involving the St Marys office and another office, he would expect to see a sales advice document reflecting that, and correspondence between the listing and sales offices detailing the necessary arrangements to complete the conjunction sale. Mr MacKinnon stated that documents numbered 11, 13, 38, 40, 62, 63, 68, 69, 71, 72 and 73 in HMB1 were examples of such correspondence. He noted that several of these documents evidenced conjunction sales between the St Marys office and the real estate agency at Minchinbury operated independently but cooperatively with Real Estate One.
Mr MacKinnon ventured the opinion that although the document numbered 14 in HMB1 purported to be a sales advice for a St Marys listing, that appeared incorrect as the receipt number given was a receipt number used by the Erskine Park office. This indicated that the deposit paid by the purchaser had been paid into the trust account at the Erskine Park office . Mr MacKinnon also ventured the opinion that documents numbered 62, 63, 68 and 69 indicated conjunction sales between the Minchinbury agency and the Erskine Park office with no involvement by the St Marys office. Mr MacKinnon said that one could not have a conjunction sale between more than two real estate offices.
Mr MacKinnon stated that there should exist in the St Marys office sales summary sheets prepared each month showing what commission income had been earned by each salesman in each month. He said that in his experience such documents were prepared and were signed by the office manager and the relevant sales persons so as to avoid any dispute as to commissions to be paid. Mr MacKinnon said that he had seen such commission summary sheets when he worked at the St Marys office but said that the sheets may have been held at the Erskine Park office.
Mr MacKinnon said that prior to the purchase of the St Marys agency by Mr Grey there were no sales targets that he was aware of. However, after Mr Grey bought the St Marys agency Mr Bevan advised him of a sales commission target of $22,000 or $22,500 per month. Mr MacKinnon also said that he had been invited to buy the St Marys agency but had declined the offer.
Mr MacKinnon was shown annexures A-F to Mr Grey’s affidavit, being the asserted representations made to Mr Grey. Mr MacKinnon said that the figure of $400,094 shown as commission income was, in his view, not consistent with trust account records for the St Marys office. He said that he could not tell from looking at annexures B-F which of the purported sales were sales which involved the St Marys office. He stated that he had never seen such a high ratio of conjunction sales to exclusive listings as was purported to be shown in annexures A-F.
Mr MacKinnon was shown a copy of trust account records for the St Marys office for the months of February, March and April 2001: exhibit A4. He stated that there were no trust account transactions at St Marys in any of those months.
At this point Mr Justice conceded that the purported sale of 21 Shaula Crescent, Erskine Park, did not appear in the St Marys trust account records.
In cross-examination Mr MacKinnon accepted that the Minchinbury agency was run as an independent operation. He resisted suggestions that his evidence as to what should occur in the case of a conjunction sale reflected good practice rather than any legal obligation. He conceded, however, that the proper procedures were simpler in the case of related agencies. He nevertheless added that there must be a proper record of who had sold what.
Mr MacKinnon said that it was his job to manage the trust account at the St Marys office. He said that he was nevertheless generally familiar with who the sales people were and what sales were undertaken. He admitted that he decreased his involvement over time after Christmas 2001. Between January and July 2002 he came into the office a few times each week. He said that he had an awareness of what properties were listed from the office listings register and property register. He accepted that he could not be sure if a property had been sold as a conjunction sale.
Mr Justice asked Mr MacKinnon how many properties were listed for sale by the St Marys office in January 2002. He thought about three. Mr Justice then asked Mr MacKinnon how many properties were displayed in the window of the St Marys office at that time. He thought between 40 and 50. He accepted that at that time most of the properties offered for sale, if sold, would have been conjunction sales. Nevertheless, he disagreed that most sales actually achieved at the time were conjunction sales.
Mr Justice asked Mr MacKinnon to assume that purported sales shown in the documents forming HMB1 were actual sales. On that basis Mr MacKinnon said that documents numbered 8, 9, 10, 11, 12, 13, 14, 15 and 17 appeared to show conjunction sales involving the St Marys office. Mr MacKinnon repeated his evidence that the receipt reference given on document 14 was an Erskine Park reference. In relation to document 12 Mr MacKinnon said that the person signing the document above his name was not him and had no apparent authority to sign on his behalf. However, he had no basis to dispute the letter as reflecting an actual sale.
Mr MacKinnon accepted that paragraph 9 of his affidavit was based upon listing information. He confirmed that he did not examine conjunction sales for the period referred to in his affidavit.
Mr Justice asked Mr MacKinnon about his conversation with Mr Bevan deposed to in his affidavit. He said that he thought that Mr Bevan used the expression “minimum targets” when setting a commission target of approximately $22,000 per month.
I asked Mr MacKinnon why he thought the ratio of conjunction sales to direct listings in the asserted representations to Mr Grey were so odd. Mr MacKinnon explained that, in his opinion, such a ratio was untenable as it would be an unreasonable drain on the commission income of the listing office. I asked him whether, if there were not a majority of conjunction sales producing income for the St Marys office, the agents could have derived sufficient commission income to keep them employed there. He responded that there was dissatisfaction at the office at the level of commission income. I asked Mr MacKinnon to look at annexures B-F and comment upon the different amounts shown as commission income upon particular sales. He stated that the higher amounts probably represented direct listing sales and the lower amounts appeared to represent conjunction sales. He stated that it appeared that the majority of the sales appearing in the list were conjunction sales (eg those disclosing a commission income below $4,000).
In re-examination Mr MacKinnon was asked about the changing status of Mr Bevan after the sale of the St Marys agency to Mr Grey. He said that prior to that sale Mr Bevan had been known as the “owner” of the agency but after the sale he was described as an “employed manager”.
Mr MacKinnon was also asked about a whiteboard he had referred to in cross-examination kept at the St Marys office. He said that at one stage the whiteboard was used to note sales targets but it was later removed.
Respondent’s evidence
The respondents rely upon an affidavit by Lawrence Keith Cunningham filed in court on 26 July 2004 and two affidavits by Heath Michael Bevan filed on 24 May 2004 and 16 July 2004. Mr Justice also tendered four documents, being a bundle of correspondence relating to sales in issue between the parties (exhibit R1), a bundle of documents from Lonori’s financial records relating to sales in issue (exhibit R2), financial records for Lonori for the 1999, 2000, 2001 and 2002 years (exhibit R3) and a version of the contract for the sale of the real estate business at St Marys, asserted to be the correct version by the respondents (exhibit R4).
Lawrence Keith Cunningham
Mr Cunningham is the second respondent and the director of the first respondent. His affidavit filed on 26 July 2004 is very short and responds to certain paragraphs of Mr Grey’s and Mr McKinnon’s affidavits. I permitted Mr Justice to lead additional evidence orally in chief from Mr Cunningham. He stated that he now lives in Thailand, although he still maintains the address indicated in his affidavit. He acknowledged the financial accounts of Lonori forming exhibit R3. He also stated that in the 2002 financial year the company increased its profit due to the operation of the St Marys real estate office under the company. He stated that the St Marys office provided the Real Estate One business with significantly increased exposure and additional “thrust” both in the St Marys and Erskine Park regions.
In cross-examination Mr Cunningham agreed that Mr Grey had sought access to Lonori’s trust account records for the St Marys office and stated that he (Mr Cunningham) thought that they were at the St Marys office. He added that he thought Mr Grey had misunderstood what he was likely to find in those trust account records. Mr Cunningham agreed that if a property had been listed at the Erskine Park office of Real Estate One and sold by an agent at that office, it would not be a conjunction sale and that the details of such a sale should not have appeared on the list of sale commissions provided to Mr Grey. However, he disputed that the list was inaccurate. He stated that because the Erskine Park and St Marys offices of Real Estate One were operated by the same company the arrangements between them were informal and that correspondence relating to sales was, for convenience, sent from the Erskine Park office, even though the sale may have been made at the St Marys office.
Mr Leybourne took Mr Cunningham through various paragraphs of Mr Bevan’s affidavit filed on 16 July 2004 to ask about his knowledge of particular sales. Mr Leybourne also took Mr Cunningham to the documents exhibited to that affidavit, collectively marked HMB1. In relation to the sale referred to in paragraph 93 of that affidavit and the document at page 39 of HMB1 Mr Cunningham said that he could see nothing to indicate a conjunction sale but he assumed that there was some involvement by the St Marys office. He denied that he had just “bolstered” the figures in order to influence Mr Grey. Mr Cunningham agreed that there was no apparent link with the St Marys office in document 45 in HMB1 and paragraph 113 of Mr Bevan’s affidavit. However, he did not accept that there was no St Marys office involvement.
Mr Cunningham was prepared to concede that the sale referred to in paragraph 5 of Mr Bevan’s affidavit, and identified in document 1 of HMB1, should not have been included in the list provided to Mr Grey because the sale in issue was made (but not completed) before the St Marys office opened. He made the same concession in relation to the sales referred to in paragraph 7 (document 7), paragraph 9 (document 3) and paragraph 1 (document 4). In relation to other sales Mr Cunningham either assumed that there was a St Marys involvement or stated that he had some personal knowledge of a sale having been effected by a salesman at the St Marys office.
In relation to paragraph 194 (document 69) of Mr Bevan’s affidavit, Mr Cunningham stated that he recalled the property and the sale. He stated that the property was listed at the Erskine Park office but sold by one of the salesman at the St Marys office (either Mario Stevens or another salesman called James). In relation to the sale referred to by Mr Bevan in paragraph 73 and 72 of his affidavit Mr Cunningham said that he remembered both sales and that both properties were sold by Mario Stevens.
In relation to the sales referred to by Mr Bevan at paragraphs 96, 97 and 115 of his affidavit, Mr Cunningham said that he had no direct recollection but that the files might be found in the St Marys office.
Mr Cunningham denied a suggestion from Mr Leybourne that most purported conjunction sales in the list provided to Mr Grey were false.
Mr Cunningham was asked why there was no reference to conjunction sales in sales advices exhibited to Mr Bevan’s affidavit. He stated that there was no need for them to be identified in those documents because sales staff would put in claims for payment of commission at the end of each month based on their own records.
Mr Leybourne made a call for documents evidencing the commissions referred to in the representations made to Mr Grey. On the morning of 14 October 2004, Mr Justice advised the Court that there were no documents to produce.
I asked Mr Cunningham whether he relied on Mr Bevan for information when he prepared the document provided to Mr Grey. He said that he did not. He stated that he worked off sales summary sheets at the time.
Mr Cunningham was asked whether Mr MacKinnon regularly attended the St Marys office. He stated that he did not. He stated that Mr MacKinnon was suffering from bone cancer in 2002 and that his wife would generally audit the books for the St Marys office rather than Mr MacKinnon. He said that Mr MacKinnon only attended about once a month. He had been paid a fee to act as the licensee of the St Marys office but that little was expected of him in a practical sense.
Mr Cunningham was asked about paragraphs 7-10 of Mr MacKinnon’s affidavit. He expressed surprise that Mr MacKinnon was not aware that details of conjunction sales would not appear in the St Marys office trust accounts. He said that Mr MacKinnon knew the real facts of the manner of operation of the two offices as one business.
Mr Cunningham said that he could not recall telling Mr MacKinnon not to mention to Mr Grey that Mr Bevan was a part owner of the first respondent. He vehemently denied a suggestion that he had guaranteed $20,000 per month income to Mr Grey. He stated that Mr Grey had sought a clause in the contract to that effect but he had refused it. He also thought that the figure sought was $15,000 rather than $20,000.
I asked Mr Cunningham how the information in the representations made to Mr Grey was gathered. He said that he asked his secretary to prepare a list of relevant sales and then he decided which sales were included in the list. He stated that he thought some sales that should have been included had been inadvertently left out. I also asked Mr Cunningham if there was any reason why Mr Bevan could not be the licensee of the St Marys office. Mr Cunningham said that Mr Bevan had not done the necessary course. I further asked Mr Cunningham whether Mr Bevan always worked at the St Marys office. He stated that staff moved back and forth between the St Marys and Erskine Park offices but that Mr Bevan basically always worked at the St Marys office.
In re-examination Mr Cunningham confirmed that the building and the business at St Marys were both sold to the first applicant within a relatively short time of one another.
Heath Michael Bevan
Mr Bevan is a director and 50 per cent shareholder in a company called Bevan Estates Pty Ltd which is in turn a 50 per cent shareholder in Lonori, the first respondent. In his first affidavit, Mr Bevan deposes that Mr Cunningham (the second respondent) is the sole director of Lonori and that Mr Cunningham’s former wife (Julie Cunningham) holds the other 50 per cent of Lonori. Mr Bevan deposes as to the history of the Lonori company and the establishment of the Real Estate One office at St Marys. He deposes that, following the establishment of the St Marys office, the company operated the two offices effectively as a single business. In particular, all listings and sales were to be available to both offices in a 50/50 conjunction arrangement. If a property was listed by the Erskine Park office, there would be no constraint on a salesperson from the St Marys office selling that listing (and vice versa). In the event of a sale of a property, whether by conjunction or single listing, the gross commission would be credited to Lonori’s operating account and the salespersons’ commissions and other overheads would be paid from that account. In the event of a conjunction sale the commission would be split between the two offices.
Mr Bevan deposes that separate trust accounts were maintained at each of the two offices. There were also separate licensees, Mr Cunningham for Erskine Park and Mr Don MacKinnon for St Marys. However, because of the informal conjunction arrangement, if a property was sold by the St Marys office which had been listed at the Erskine Park office, nothing might appear in the trust account for the St Marys office. There would simply be a notional credit to the St Marys office.
At paragraph 10 of his first affidavit, Mr Bevan deposes that it was “an explicit part of the agreement with Ian Grey that the conjunction system described above would continue”. He deposes that the same system was also in place with the Minchinbury office of Real Estate One which was owned independently of Lonori. Mr Bevan qualified his statement by saying that it was assumed or envisaged that after the sale of the St Marys office commissions would be paid to the St Marys office rather than being kept in a pool at the Erskine Park office.
Mr Bevan deposes as to his relationship with Mr Grey, which quickly deteriorated after the sale of the St Marys office. Mr Bevan confirms that he was dismissed by Mr Grey in late October 2002. Mr Bevan deposes that there was a market downturn in September 2002 and the St Marys office failed to meet its commission target of $22,000. In addition, only two properties were sold in October 2002. One of those was sold by Mr Bevan. Mr Bevan deposes that market conditions continued to be difficult for several months but improved in 2003.
Mr Bevan is critical in his affidavit of Mr Grey’s appearance and performance. He deposes as to the efforts on the part of those at Erskine Park to assist the St Marys office. Mr Bevan denies that he was dismissed for non attendance and incompetence. He admits that he took a one week holiday in early October 2002 and states that Mr Grey was aware of this.
Annexed to Mr Bevan’s first affidavit is a copy of the written representations made to the applicants concerning commission sales at St Marys prior to the sale of the business.
In his second affidavit Mr Bevan deposes in detail as to his knowledge or understanding of the property sales referred to in the representations made to the applicants. Exhibited to this affidavit is a bundle of documents relating to those sales. Mr Bevan deposes that all of the representations made to the applicants were true and that all of the sales identified in the representations were either exclusive listings of properties sold by the St Marys office or conjunction sales with the Erskine Park or Minchinbury offices of Real Estate One.
I permitted Mr Justice to lead additional oral evidence in chief from Mr Bevan. Mr Bevan stated that he worked in four different real estate agencies during his career and gave further evidence of the conjunction sales arrangement between the Erskine Park and St Marys offices. Mr Bevan stated that the conjunction arrangement between these offices was more flexible than would have been the case if the offices had been separately owned. He stated that if a customer presented at the St Marys office enquiring about a property displayed at the office and if it was not convenient to deal with the customer at the St Marys office, the customer would be referred to the Erksine Park office. Nevertheless, Lonori would treat any resulting sale as being a conjunction sale. Mr Bevan added (and somewhat differently to what in stated in paragraph 10 of his first affidavit) that this arrangement did not continue after the sale of the business to Nalania. He stated that the ordinary conjunction sales agreement that would apply between separately owned real estate agencies was maintained after the sale but the more generous arrangement that had applied between the two offices owned by Lonori was not maintained after the sale of the St Marys business. Mr Bevan said that the more generous arrangement which had applied under the single company structure was a “time and management issue”. His evidence was that it was often more convenient or efficient for customers to be assisted by staff at the Erskine Park office than by staff at the St Marys office.
In cross-examination Mr Bevan confirmed that he retained an interest in Lonori after the sale of the St Marys business. He accepted that the two companies were thereafter in competition with one another. He did not see any need to advise Mr Grey of his interest in Lonori. He saw no conflict of interest. He confirmed that the representations forming annexures A to F of Mr Grey’s affidavit and also annexed to his first affidavit were given to Mr Grey. Mr Bevan stated that in his recollection 60% to 70% of sales of properties made by the St Marys office were conjunction sales.
Mr Bevan confirmed that he spoke to Mr MacKinnon about two weeks after the sale of the St Marys business and that he asked him to take over as manager of the St Marys office. He denied, however, that he “wanted out” and denied that he wished to pursue real estate interests on the Central Coast at that time. Mr Bevan stated that he did have some involvement with real estate interests on the Central Coast in 1999 and 2000 and more recently in 2004, but was not involved in such interests at the time he spoke to Mr MacKinnon. He stated that he made his approach to Mr MacKinnon because he had become concerned about Mr Grey.
Mr Bevan denied that he derived any financial benefit whatsoever from the sale of the St Marys business by Lonori. Given Mr Bevan’s admitted financial interest in Lonori I invited Mr Justice to pursue this issue with him in re-examination. Mr Bevan stated in re-examination that he did derive an indirect financial benefit from the sale of the St Marys business through his company’s shareholding in Lonori. Mr Bevan also confirmed that a $22,000 sales target had been referred to following the sale of the St Marys business but he denied that this was described as a guarantee.
Mr Bevan was asked how commission earnings were verified for the purpose of the informal conjunction arrangement between the St Marys and Erskine Park offices prior to the sale of the St Marys office. He said that claims for commissions were made by salespersons on the basis of commission earning statements kept by those salespersons. Mr Bevan stated that he had access to some of his own sales commissions statements but none were exhibited or annexed to his affidavits and he did not have any with him at court.
Mr Bevan confirmed that the St Marys office was opened by the first respondent in February 2001. He denied a suggestion that the office was not successful in its own right. He accepted, however, that there was a “certain” reliance on conjunction sales. He denied that the sales commissions figures in the representations to the applicants were inaccurate.
In relation to paragraph 100 of his second affidavit, Mr Bevan was invited to identify from the trust account records (exhibit A4) the details on this sale. He stated that the sale was referred to on page 32 of exhibit A4 and was an exclusive St Marys listing. However, it appeared from exhibit A4 that the sale did not proceed and that therefore the property was included in the representations made to the applicants in error.
In relation to paragraph 120 of his affidavit Mr Bevan could find no record in the trust account records and stated that it appeared that this property also should not have been included in the representations. He made the same concession in relation to paragraph 121 of his affidavit.
In relation to paragraphs 122 and 126 of his second affidavit, Mr Bevan said that there was no record of the sale in the trust account and that those paragraphs of his affidavit were wrong to the extent that he had stated that the sales were reflected in the trust account records. However, he maintained that the sales were attributable to the St Marys office.
In relation to other paragraphs of his second affidavit Mr Bevan resisted suggestions that his evidence was untrue and that the sales referred to were not truly St Marys office sales. In many instances he had no personal recollection of the sales but stated that he had no reason to disbelieve the representations that had been made to the applicants. In relation to paragraphs 146, 171 and 172 of his affidavit Mr Bevan was able to verify sales records from exhibit A4. In relation to paragraph 97 of his affidavit Mr Bevan said that he recalled the sale and that the sale had been made by Mario Stevens and that the property had been listed by Mr Cunningham. He said there was no particular reason why this information had not been included in his affidavit. In relation to paragraph 129 Mr Bevan said that the property had been listed by Mr Cunningham but he could not recall who sold it.
In relation to paragraph 145 of his affidavit Mr Bevan said that Mario Stevens had bought the property and was therefore credited with a sales commission as if he had sold it. He also said that Mario Stevens had sold the property referred to in paragraph 22 of his affidavit.
In relation to paragraph 72 of his affidavit Mr Bevan stated that he recalled the property and the sale. He said that the property had been listed at the Erskine Park office and had been sold by him. I put to Mr Bevan that Mr Cunningham had told me previously that Mario Stevens had sold that property. Mr Bevan said that Mr Cunningham must be mistaken.
Mr Leybourne asked Mr Bevan whether he could recall any celebration in July or August 2002 concerning the sale of a particular property by the St Marys office. He could not recall any. He was asked whether the Real Estate One business were particular rivals of any other real estate agency. He said there were rivalries with a number of agencies but a particular rivalry existed with the firm of Richardson & Wrench.
I asked Mr Bevan if he could recall the property referred to in paragraph 194 of his affidavit. He could not recall it. I asked him how much of his time he spent at the Erskine Park office. He said that he spent about 10 per cent of his time there. I asked him whether there were instances of properties being listed at the St Marys office where clients were referred from the Erskine Park office. He said yes, that this did occur on occasion and that certain instances would be reflected in the representations made to Mr Grey. I asked him whether this practice also ceased upon the sale of the St Marys business. He confirmed that it did, consistently with the formalisation of the conjunction arrangements following the sale of the St Marys office. Mr Leybourne suggested to Mr Bevan that the introduction of purchasers from the Erskine Park office to the St Marys office in respect of properties listed at St Marys was a rarity. Mr Bevan said that it did happen on occasion. He agreed, however, that the reverse situation was far more common.
In re-examination Mr Bevan stated that there was a decline in sales at the St Marys office apparent from the representations made to Mr Grey between May and August 2002. He also stated from exhibit R3 that Lonori derived approximately $800,000 in additional income following the opening of the St Marys office in February 2001. He stated that some part of that increase in income was directly attributable to the operations of the St Marys office. In relation to paragraphs 122 and 126 of his affidavit Mr Bevan stated that the statements were incorrect in those paragraphs and that the relevant sales were conjunction sales between the Erskine Park and St Marys offices.
Mr Justice asked Mr Bevan about the procedure for the completion of commission sheets up to September 2002. Mr Bevan stated that the salesperson would complete the commission sheets monthly and that the sheets would show relevant sales and commissions earned. The sheets would be submitted to Mr Cunningham who would approve or disapprove the commission claims. The sheets would then be returned to the relevant salespersons.
Submissions
I invited written submissions from the parties. Mr Leybourne filed written submissions on 27 October 2004. Mr Leybourne submits that this case centres around misrepresentations of commission income being the deception associated with the purchase of the St Marys real estate business by the applicants from the respondents. He submits that the deception is contained in the written representations given to Mr Grey prior to the sale and forming annexures A to F of his affidavit. He submits that the deception was a deception as to the commission income earned by the office over the relevant period and extended to a deception by non disclosure that the office manager, Mr Bevan, was a 50 per cent shareholder in the company which in turn owned 50 per cent of Lonori.
Mr Leybourne submits that of the 133 sales identified in the representations made to Mr Grey, 94 have been shown to be misrepresentations. He notes that these written representations were initially denied but later admitted and defended.
Mr Leybourne submits that I should accept the evidence of Mr MacKinnon and Mr Grey as witnesses of truth and that I should reject the evidence of Mr Bevan and Mr Cunningham, to the extent that it conflicts with their evidence on the basis that the evidence of Mr Bevan and Mr Cunningham has been shown to lack accuracy and credibility.
Mr Leybourne submits that the applicants have demonstrated breaches of ss.52 and 59 of the TPA and that, but for the misrepresentations made, the applicants would not have purchased the business.
Mr Leybourne submits that the applicants have sustained losses of $306,000 by reason of the TPA breaches asserted and submits that the Court should award the maximum amount available pursuant to this Court’s jurisdiction under the TPA ($200,000). He also seeks an order for costs.
Annexed to Mr Leybourne’s submissions is a list of sales contained in the representations made to Mr Grey which are either accepted by the applicants as accurate or which are asserted to be inaccurate. This was prepared in response to a request from me. Based upon that document the applicants assert that the following sales commission representations were false:
·21 Shaula Crescent, Erskine Park
·53 Pinecreek Circuit, St Clair
·1 Toscano Court, Erskine Park
·10 Coolong Crescent, St Clair
·32 Whistler
·Warbler Street, Erskine Park
·8 Columba Place, Erskine Park
·2/5 Oleander
·8 Jade Place, St Clair
·15 Willow
·1 Shadlow Crescent, St Clair
·3 Swift Glen, Erskine Park
·4 Capri Place, Erskine Park
·48 Shaula Crescent, Erskine Park
·8 Dilga
·6 Peppertree Driver, Erskine Park
·12 Kista Dan, Tregear
·9 Pegasus Street, Erskine Park
·3 Cumbraie
·26 Regulus Street, Erskine Park
·66 Chameleon Drive, Erskine Park
·7 Boston Place, St Clair
·6 Barcoo Close, Erskine Park
·11/15-19 Chapman Street, Werrington
·9 Calais Place, Erskine Park
·42 Colorado
·90 Alpine Crescent, St Clair
·10/18-20 Calder Road, Rydalmere
·12 Krugar Place, Erskine Park
·53 Weaver Street
·20 Capella Street, Erskine Park
·6 Cassia
·Skylark Crescent, Erskine Park
·68 Fantail Crescent, Erskine Park
·1A Dunstaffnage, Erskine Park
·10 Shakespeare
·52 Oleander
·7 McMurdo
·38 Weaver Street, Erskine Park
·3 Cockatoo Road, Erskine Park
·46 Shaula Crescent, Erskine Park
·7 Warbler, Erskine Park
·24 Regulus
·3 Pollux Close, Erskine Park
·133 Explorers Way, St Clair
·424 Luxford
·2/6 Cumbrae Close, Erskine Park
·15 Ferrier
·15 Frances
·14 Alexandra Circuit, St Clair
·10/11 Chapman
·10 Kelmscott
·8 Ballyleaney Place, Erskine Park
·19 Kestral
·10 Barcoo Place, Erskine Park
·13 Skylark Crescent, Erskine Park
·10 Pacific Road, Erskine Park
·16 Pacific Road, Erskine Park
·6/11 Chapman
·209 Sykes
·10 Bass
·5 Hydra
·1 Salem Place, St Clair
·33 Explorers Way, St Clair
·14 Fontana
·43 Lyrebird
·104 McFarlane
·253 Swallow
·18 Whipbird Place, Erskine Park
·23 Pacific
·18 Kawana Place, Erskine Park
·15 Hascombe
·52 Coonawarra
·9 Anne Avenue, Seven Hills
·14 Onslow
·39 Australia
·3 Nalong Street, St Clair
·4 Caddell Glen, St Clair
·12/40-42 Victoria Street, Werrington
·27/40-42 Victoria Street, Werrington
·2 Coot Place, Erskine Park
·13 Pegasus Street, Erskine Park
·3 Wooton Street, Colyton
·23 Raupach St, Dean Park
·21 Vintage Place, Minchinbury
·23 Charmer Crescent, Minchinbury
·11 Pearl Close, Erskine Park
·4 Maranatha Street, Rooty Hill
The applicants acknowledge that the following sales commission representations were accurate:
·15 Rotorua Road, St Clair
·Glennie
·121 Minchin Drive, Minchinbury
·19 Birch Street, St Marys
·13/2 Bayton Street, Oxley Park
·21 Muscio Street, Colyton
·7 Sherry Place, Minchinbury
·45 Adelaide Street, Oxley Park
·40/34 Hythe Street, Mt Druitt
·Muscio
·13 Gilmour Street, Colyton
·14 Kipling Drive, Colyton
·14 Ontario Avenue, St Clair
·7/49 Meacher Street, Mt Druitt
·33 Orchard
·3 Dennis
·Allawah Court, Erskine Park
·12/2 Bayton Street, Oxley Park
·6 Bass
·20 Wideview
·169 Victoria Street
·14/12 Hythe
·60 Weaver Street
·3Swales
·221 Shepherd
·5 Clem
·1/11 Chapman
·20 Orchard
·12 Lethbridge
·1/15-19 Chapman
·5 Ellis
·14 Pinto
·132 Brisbane
·27 Sandakan
·2/39 Blenheim Avenue, Rooty Hill
·7 Cook Street
·35 Carrington
·13 Taball Street, Whalan
Mr Leybourne prepared the following table, which summarises the applicants’ position:
Analysis of the evidence
The numbers referred to in this analysis correspond to the numbers allocated in the affidavit of Heath Michael Bevan sworn on 16th July 2004.
Sales rejected as St Marys (SM) office sales for the following reasons
(A) They occurred before the (SM) office was opened
No 5-7-9-11 Total 4
(B) There is no file or settlement letters available
Nos 13-18-84-96-97-129-130-145-148-153-154-155 Total 12
(C) They are an Erskine Park (EP) listing and an (EP) sale
Nos 14-16-38-76-78-93-113-116-118-127-131-134-140-149-151-159-161-162-174-183-185-189-196 Total 23
(D)There is no file available but there is a settlement letter on (EP) office
Which indicates an (EP) list and sale
Nos 22-37-46-72-73-115-133-136-158-161-164-165-176 Total 13
(E)They do not show on (SM) trust records
Nos 100-120-121-122-126-146-171-172 Total 8
(F)They are a conjunction sale between Minchinbury and (EP) offices
Nos 179-181-191-194-201 Total 5
(G)Where there is a sales advice showing (SM)office involvement but requires further evidence of (SM) office involvement and how the (SM) salesperson was paid for the sale from file.
Nos 20-22-23-25-33-35-40-44-47-49-51-55-66-68-70-74-80-83-85-87-105-109-111-138-139-143-166-187 Total 28
(H)Where there is conflict between the sales advice and settlement letter
No 107 Total 1
TOTAL 94
Sales accepted as (SM) office sales for following reasons
(I)Conjunction sales which have settlement letters on the (SM) office
Nos 19-27-28-29-31-42-53-57-59-64-89-92-98-177-199-203
Total 16
(J) Sales shown on (SM) office trust accounts
Nos 61-62-63-91-92-95-101-102-103-104-123-124-125-142-147-156-157-168-169-170-173-193-198 Total 23
TOTAL 39
Mr Justice filed the following written submissions on 24 November 2004. He submits that:
1.In or around April or May 2002 Mr Grey responded to a newspaper advertisement for the sale of, inter alia, the business known as Real Estate One St Marys which traded out of premises in Queen Street, St Marys (“St Marys Office”). The St Marys Office was owned by the first respondent, Lonori Pty Limited (“Lonori”) which also operated the Real Estate One office at Erskine Park (“Erskine Park Office”). In or about August 2002 during the course of negotiations for the purchase of the business Mr Grey was provided with a document entitled “Real Estate One St Marys 178 Queen Street” and listing sales commissions earned by the St Marys Office (“List”) for various properties: Annexures A – F of the affidavit of Ian Carling Grey sworn 15 March 2004. Mr Grey made no other investigations concerning the business and in early September 2002 purchased the St Marys Office.
The applicants’ case
2.There are no pleadings in this matter. The Applicants’ case cannot be determined from the original application and was not fully disclosed until the Applicants filed and served their outline of case and clarified their position at the hearing of the matter: [T1.7][T1.17]
3.The nub of the Applicants’ case, as it was conducted at the hearing, is whether certain sales information, being a summary of sales commissions of the St Marys Office (pages B – F of the List), was misleading and deceptive in breach of section 52(1) and 59(2) of the TPA. No other section of the TPA is raised in the original application nor the Applicants’ outline of case nor at the hearing of the matter nor in the Applicants’ written submissions. Accordingly, as was put at the hearing the Respondents have proceeded on this basis and have conducted their case accordingly.
The claim against the second respondent
4.In light of the Applicants’ claim being brought under sections 52(1) and 59(2) of the TPA, the claim against the Second Respondent, Mr Cunningham, is completely misconceived. Both sections only apply to corporations. Mr Cunningham is not a corporation: therefore the Applicants’ claim against him must fail.
5.While there are provisions in the TPA that permit the award of damages to be made against individuals who are involved in contraventions of the TPA the Applicants have failed to raise any such provision against Mr Cunningham in their original application, in their outline of case, at the hearing of this matter or in their written submissions. Further, the Respondents, through counsel, sought precise clarification about the nature of the claim brought against them at the opening of the hearing: [T1.6 – 7] and Mr Leybourne, the Applicants’ solicitor and counsel, failed to raise any such claim. The case was conducted on that basis. The issues that are required to be proved under the provisions of the TPA to attach liability to individuals were not run at hearing and there is no basis in law or in fact for the claim against Mr Cunningham and it ought, with respect, be dismissed and costs for that portion of the claim paid on an indemnity basis.
6.To the extent this issue may be raised in reply by the Applicants the Respondents may seek leave to make further submissions, however, for the avoidance of any doubt Mr Cunningham was not the licensee of the St Marys Office (that was Mr MacKinnon:[T3.4.13]). Mr Cunningham was not the office manager of the St Marys Office (that was Mr Bevan). Mr Cunningham prepared the List on the basis of information he was advised of. He is under no obligation, in respect of the provisions that seek to attach personal liability, to verify its accuracy: Crocodile Marketing Ltd v Griffith Vintners Pty Ltd (1989) 28 NSWLR 539. Accordingly, no personal liability could be found to attach to Mr Cunningham even if such a case was properly put against him.
The claim against the first respondent
7.While trite, for the Applicants to establish a breach of sections 52 or 59(2) of the TPA the Applicants’ bear the onus of establishing that they:
(a)were given the List (which is not disputed);
(b)relied on the List; and
(c)that the List was either:
(i) misleading or deceptive; or
(ii) false or misleading in a material particular.
8.As it is not in dispute that the List was provided to Mr Grey the first element that must be made out is that of reliance. The issue of reliance is not clear from Mr Grey’s evidence. From the evidence it appears that Mr Grey in fact relied on a purported $22,000 per month guarantee or his sales ability when purchasing the St Marys Office rather than the List.
9.The Applicants tried to incorporate into their case a claim that the Respondents gave the Applicants a guarantee that the St Marys Office would have a minimum turnover $22,000 per month. This claim was abandoned by Mr Leybourne: [T1.17.22 et seq][T2.8]. However, Mr Grey still maintained it from the witness box and the Applicants still rely on it in their written submissions. It is, however, unequivocal from Mr Grey’s evidence that no such agreement was ever reached: see [T2.86]. Notwithstanding this, it is important because it goes to Mr Grey’s state of mind and shows that Mr Grey relied on this misconception rather than the List in his assessment of the St Marys Office: see for example [T2.53 – 57][T2.78.28]. This position is supported by Mr Grey’s lack of concern about decreasing sales figures for the last five months of the List. That Mr Grey mistakenly convinced himself there was a guarantee of $22,000 per month is evident from the following portion of his cross-examination (at T2.53):
Justice: Yes, and if interest rates, for argument sake, rise, that may slow down interest from purchasers?
Grey: Yes, but I wanted 22,000 as a minimum, that was the deal. And that was the only condition I put on the purchase.
Justice: …There is no condition of $22,000 at all. It is a figment of your imagination?
Grey: That’s wrong, that’s not true.
And then later (at T2.57.6):
Justice: … I am asking you or rather I am putting to you that it is not – a sales target for a sales staff is not an agreement between you and Mr Bevan, Mr Cunningham or anyone else – that they would guarantee you $22,000 a month, is it?
Grey: It was the only reason I bought the business, that that was the case. That is the only reason I paid the amount of money I did – was that there was a minimum of $22,000…
10.If this is the case, and the issue was never traversed in re‑examination, then the Applicants’ case must fail as there was no reliance by the Applicants on the List and the Court will not find an entity in breach of section 52 of the TPA where a person “is misled by a misconception of their own”: Tobacco Institute of Australia v AFCO (1993) 15 ATPR 41-199 at 40,793 per Hill J. Further, it should be noted, even though it does not form part of the claim that Mr Grey’s misunderstanding was no fault of the Respondents as on the Applicants own evidence Mr Cunningham told Mr Grey in respect of the guarantee of $22,000 that Mr Cunningham would not “agree to any of this sort of bullshit”: [T2.54.17] and where Mr Grey then said, “All right, I will forget about the requirement”: [T2.86.22]. While Mr Grey did not have it included in the contract for sale, the misconception played large in his mind.
11.Another important part of Mr Grey’s evidence in respect of reliance that does not form part of the Applicants’ case is that of when Mr Grey took over the operation of the St Marys Office and what he did. Mr Grey’s evidence in chief was that he only wanted to be a “passive investor”. This however was simply not the case, even Mr Grey’s evidence in chief seems to contradict his position (at T1.55.32 et seq):
Leybourne: So 3 September, in fact, was your exchange and your settlement date. Is that what you are saying?
Grey: Yes, it was.
Leybourne: From that day onwards, you were the proprietor of the business?
Grey: Yes, yes. The following day I took over.
Leybourne: As you say, as a silent – as a passive - - - ?
Grey: As a passive investor, yes…
(My emphasis)
12.In cross-examination Mr Grey’s evidence was that from 4 September 2002 he was at the St Marys Office “pretty well every day”: [T2.50.29] from before 10am in the morning to after 3pm each of those days. Further, Mr Grey made no investigations about the capabilities of any of the sales staff at the St Marys Office prior to the First Applicant purchasing it: [T2.48.28]. Mr Grey was an optimistic purchaser: [T2.79.33]. Mr Grey attempted to sell properties to clients from almost the first day. Finally, Mr Grey was not overly worried about declining sales figures in the months immediately prior to the First Applicant’s purchase of the St Marys Office: [T2.79.19]. The only reasonable inference that can be drawn out of all of this is that Mr Grey relied on his perceived sales ability rather than the List or perhaps it was this coupled with his misconception about the $22,000 guarantee that he relied on, however, it was not the List that Mr Grey relied on. Again, if this is the case the Applicants’ claim must fail.
13.It is conceded that the representations complained of do not have to be the sole cause or only factor in the decision by the Applicants to purchase the St Marys Office: Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1998) 39 FCR 546 at 558 – 559 per Lockhart J (Burchett and Foster JJ agreeing). However, it is the Applicants’ onus to establish that the List was relied on in some capacity and influenced the purchase of the St Marys Office and given:
(a)Mr Grey’s evidence that he relied entirely on the misconceived guarantee; and
(b)his correspondence to the Respondents stating that the real reason for the failure of the business was not any misrepresentation but lack of finance: Exhibit R3,
the Applicants have not established their onus. While Mr Grey does give evidence that he relied on the List, or at least some part of it, given the above the Court, with respect, would be hesitant to make a finding that the Applicants relied on the List.
14.If the Court was to find, notwithstanding Mr Grey’s admissions, that the Applicants relied on the List the extent the Applicants relied on the List, was to make sure that the monthly sales were able to support the misconceived minimum turnover guarantee of $22,000: [T2.70.26 et seq]. Again, if this is the case the Applicants’ claim must fail as the List was being relied on not for what it says but for support for a misconceived matter.
15.If the Court was to find, notwithstanding Mr Grey’s admissions, that the Applicants relied on the List, the Court, with respect can only find that the Applicants only relied on a portion of the List. Mr Grey did not rely on the entirety of the List he was influenced by the last part of the List: [T.68.1] and possibly the last twelve months [T2.69-70]. This is also supported by his earlier evidence: [T.51.19]. Accordingly, only the period from September 2001 to August 2002 needs to be considered. The documentary evidence supporting the inclusion of the properties on the List is found in the schedule annexed hereto. However, before considering the List in detail one must review the evidence of the relevant witnesses.
Mr Grey’s evidence
16.Mr Grey’s evidence under cross-examination was evasive. Mr Grey attempted to maintain positions that were clearly unsupportable. His continued assertion in respect of the $22,000 minimum monthly turnover guarantee was just one example. Mr Grey’s evidence was tainted with excuses for the failure of the St Marys Office. Mr Grey took over the St Marys Office and was given assistance by Lonori. He had complete access to the Erskine Park Office listings: [T.74] – just as the St Marys Office had before the sale to the First Applicant. In 2003 Mr Grey was the sole sales agent for the St Marys Office and the viability of the business came down to his performance: [T.76.22]. The St Marys Office failed because of Mr Grey’s lack of ability as a salesman and lack of finance: [T.76.30]. Mr Grey failed as a salesman for the reasons set out in the affidavit of Mr Bevan – none of that evidence was seriously challenged in cross‑examination. Further, Mr Grey was short of cash: [T.74.40]. Indeed, Mr Grey in his dealings with Mr Cunningham during 2003 did not consider the underlying problem was any reliance on any misrepresentation but rather a lack of finance: [T.77][ExR3]. Mr Grey’s evidence for the most part was tainted by his bid to seek excuses and salvage something from his failure.
17.Further, his evidence and the Applicants’ claim changed during the giving of his evidence. For instance at the commencement of his evidence Mr Grey gave evidence that most of the properties in the List had not in fact settled: [T2.12.12 et seq]. This position changed during his evidence to an assertion that a file was required for each sale. This case is not about whether files were or were not available, in some cases they clearly were not. However, it should be noted that despite Mr Grey’s protestations neither of the Applicants sought discovery of the files, nor did they subpoena the files, nor did they call for them during the hearing. Accordingly, Mr Grey’s evidence should be given very little weight.
18.In addition to the issues raised above in respect of Mr Grey’s evidence there are some important points to note, namely:
(a)Mr Grey agreed that so far as the sales figures were concerned there were four conjunction listings to every St Marys listing: [T.80.36];
(b)the sales recorded in the List were three or four hundred percent greater than the trust sales: [T1.64.26]. That is for every trust sale there were three or four conjunction sales. This is perfectly explicable in light of the listings ratio;
(c)Mr Grey undertook no due diligence and raised no issue in respect of declining monthly sales; and
(d)Mr Grey has no evidence that Mr Bevan was not telling the truth in his affidavit: [T2.28.1]. This is critical on whether Mr Bevan’s evidence ought be believed;
19.In short Mr Grey did not establish that the List was misleading or deceptive.
Mr MacKinnon’s evidence
20.Mr MacKinnon was in effect a name-plate licensee. Mr MacKinnon’s involvement in the office was minimal, he worked only part-time: [T3.30.12], he did not, for example, know of any sales targets: [T3.18.37], nor did he have any involvement in costs or overheads at the St Marys Office: [T3.19.26] nor any involvement in the administrative functions of Lonori: [T3.28.29].
21.Mr MacKinnon’s evidence about the conjunction sales made by the St Marys Office was opinion based only on his past experience, which was not the experience of an entity controlling multiple agencies, and the St Marys Office trust records.
22.Mr MacKinnon’s evidence in his affidavit about the accuracy of the List was based solely on his view of the trust account records and did not take into account any conjunction sales: [T3.43.5]. Further, Mr MacKinnon made no investigations about any conjunction sales: [T3.44.1]. Mr MacKinnon did not know how many conjunction sales the various agents at the St Marys Office made during the period he was licensee: [T3.31.11]. Mr MacKinnon did not keep a record of the St Marys Office conjunction sales: [T3.29.11].
23.Notwithstanding this the Applicants seek to use Mr MacKinnon’s evidence as a basis for denying any involvement of the St Marys Office in sales of the following premises:
(a) 12/42 Victoria Street;
(b) 27/40-42 Victoria Street;
(c) 21 Vintage Place;
(d) 24 Charmer Crescent;
(e) 4 Marantha Street; and
(f) 13 Talball Street.
24.However, under cross-examination Mr MacKinnon conceded that he was unable to give any evidence contradicting Mr Bevan’s evidence that the conjunction sales detailed in Mr Bevan’s affidavit were made by St Marys: [T3.22.2]. Accordingly, Mr MacKinnon’s evidence is of very little weight with respect to the relevant issues in these proceedings.
The evidence of Mr Cunningham and Mr Bevan
25.Both Mr Cunningham and Mr Bevan were consistent and honest witnesses. Both were willing to concede issues where they had previously been mistaken, for example the issue of the first few properties included on the List. However, both were also adamant about the sales made, even where there was no documentary record to support the sale. In a number of cases both Mr Cunningham and Mr Bevan were able to recall the circumstances or features of the properties or sales of the properties to explain how they could recall the properties were sold by the St Marys Office.
26.Mr Cunningham and Mr Bevan also explained the operation of the St Marys Office and the Erskine Park Office and how the two offices worked closely together on sales. Mr Bevan also explained the practice of referring clients to the Erskine Park Office if the sales people at the St Marys Office were unavailable and the sale being treated as a St Marys Office sale because that practice would not occur if they were separately owned agencies.
27.Mr Cunningham also gave evidence about the increase in revenues and profit for Lonori once the St Marys Office was up and running. Exhibit R4, the profit and loss and balance sheets for Lonori clearly demonstrates the impact the St Marys Office had on the operation of Lonori and is entirely consistent with the sales commissions recorded in the List for the St Marys Office. This is strong, independent evidence that the List was not misleading or deceptive. Further, this evidence was not challenged in cross-examination.
28.In light of the above the evidence of Mr Cunningham and Mr Bevan ought be preferred to the witnesses for the applicants (on whose own evidence cannot challenge the evidence of Mr Cunningham or Mr Bevan) and ought be accepted on the sales recorded on the List were there is a lack of documentary evidence.
Damages
29.While it is the Respondents’ position that the Applicants have failed to make out their case, should the Court be against the Respondents on that then the Respondents submit that the damages sought in the original application and the written submissions are misconceived.
30.The applicants’ submissions reveal a claim for damages in the amount of $306,000 reduced to the court’s jurisdictional level of $200,000. The first head of claim is for profit of $10,000 per month arising from the purported the $22,000 guarantee claim. As has been explained above this was not even run as a misleading and deceptive claim. Accordingly, this portion must fail for the reasons set out above.
31.The second head of claim for damages is remuneration of $1,100 per week for the Second Applicant. There are a number of reasons why this head of claim for damage is misconceived. Firstly, for the reasons set out above, it was never Mr Grey’s intention to be a passive investor. Secondly, there was no mitigation. There was no explanation given as to why Mr Grey could not have hired another manager or indeed even promoted one of the other sales agents. Finally, this is not a loss caused by any misrepresentation. It is an expense that was declared and would have been paid by the Applicants regardless of the accuracy of the List.
32.The third and final head of claim is for a refund of the purchase price of the business. Again this is misconceived. With respect the proper basis for damages, should any arise, is the difference in the price paid because of any misrepresentation and the actual value of the St Marys Office: Phillips v Ward [1956] 1 All ER 874 at 875-876; Watts v Morrow [1991] 4 All ER 937; Rentokil Pty Ltd v Channon (1990) 19 NSWLR 417. There is no evidence of the value of the St Marys Office based on the sales that the Applicants allege. Further, the value should not be taken as a zero value because the St Marys Office ultimately had to shut down because of Mr Grey’s failure: Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 at 291. Accordingly, if any damages were to arise, given Mr Cunningham and Mr Bevan’s evidence about the nature and strength of the real estate environment and the resources the St Marys Office was equipped with the damages could not amount to much.
Mr Leybourne filed written submissions in reply by facsimile on 10 December 2004. He submits that the evidence establishes that the asserted representations were made by Mr Cunningham to Mr Grey, that the representations were substantially false and that Mr Grey relied upon them to his detriment. He submits that as Mr Cunningham is the director of Lonori, it should bear responsibility for his conduct.
Mr Leybourne contests the description of the evidence by Mr Justice. He submits in particular that the Court should prefer the evidence of Mr Grey and Mr MacKinnon to that of Mr Cunningham and Mr Bevan. Mr Leybourne submits that Mr Grey (and presumably Nalania) are entitled to be put back into the position that they were in prior to the sale of the business to Nalania, as well as compensated for “missed opportunities” suffered by Mr Grey when he was forced to take over the running of the business.
Reasoning
It is the issue of reliance, and the issue of damages, that Mr Justice concentrates on in his submissions. His submissions deal only lightly with the primary response to the application which was that the representations made were accurate. That probably reflects the way the evidence came out at the trial. Nevertheless, the respondents continue to maintain that the representations were accurate and it is necessary for me to deal with all disputed issues. The issues requiring determination therefore are:
a)Did the respondents make false or misleading representations contrary to the TPA?
b)Did the applicants rely upon those representations if so made?
c)Have the applicants suffered loss or damage as a result of such reliance?
d)What is the effect of the conduct of Mr Grey following the purchase of the business?
e)Should either or both of the respondents bear any liability found?
Section 52(1) of the TPA provides that:
A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
Section 52(2) provides that:
Nothing in the succeeding provisions of [that] division of the Trade Practices Act shall be taken as limiting by implication the generality of sub section (1).
Section 59(2) provides that:
Where a corporation, in trade or commerce, invites, whether by advertisement or otherwise, persons to engage or participate, or to offer or apply to engage or participate, in a business activity requiring the performance by the persons concerned of work, or the investment of moneys by the persons concerned and the performance by them of work associated with the investment, the corporation shall not make, with respect to the profitability or risk or any other material aspect of the business activity, a representation that is false or misleading in a material particular.
In my view, s.59(2) of the TPA has no application in this case. It is a related provision to s.59(1), which deals with misrepresentation in the promotion of home based businesses. Section 59(2) is also directed to advertisements inducing people to start or invest in small businesses, although it is not in its terms limited to those circumstances. In its terms, s.59(2) is limited to the misrepresentation of businesses in respect of which either work or investment funds are solicited from the target. The reported cases on the provision concern the promotion of new franchises or distributorships. The respondents were not soliciting work or investment funds from the applicants. They were selling a business as a going concern. None of the parties expected that Mr Grey would work in the business (although after the sale he decided to) and none of the parties expected that either Mr Grey or Nalania would be required to invest funds in the business of Lonori. This was a simple case of the sale of an independent business. The circumstances are governed in my view by s.52 rather than by s.59(2).
There is no real doubt that the representations as to commission income of the St Marys business given to Mr Grey were false or misleading in material particulars and were generally misleading or deceptive. Mr Cunningham conceded under cross-examination that at least four of the asserted sales attributed to the St Marys office were not St Marys sales at all. He could hardly have done otherwise as the asserted sales he conceded as false were sales that were made before the St Marys office had been opened. In addition, Mr Bevan under cross‑examination conceded that at least three of the asserted sales attributed to the St Marys office should not have been included in the representations. These were additional to the false entries conceded by Mr Cunningham.
Mr Leybourne asserts that 94 of the 133 alleged St Marys sales included in the representations were falsely attributed to the St Marys office. It is impossible to say with certainty how many of those asserted sales were falsely attributed to the St Marys office but it is likely to be substantially more than the number conceded by Mr Cunningham and Mr Bevan. The majority of the asserted St Marys office sales are highly dubious. There is little, if any, documentary evidence to link the sales to the St Marys office and Mr Bevan and Mr Cunningham relied upon assertions that most of the sales attributed to the St Marys office were “conjunction sales” where the commission was shared between the St Marys and Erskine Park offices. Mr Bevan conceded under cross-examination that in a very substantial number of instances there was no involvement by anyone at the St Marys office in the sale of the particular properties identified. He claimed that there was an informal arrangement for the purposes of efficiency and convenience under which persons going to the St Marys office were referred to the Erskine Park office which did all the work in relation to the sale but shared commission with salespersons at the St Marys office. He conceded that the sales conducted in those circumstances were not true conjunction sales, as that term is generally understood in the real estate industry, and that it was not intended that that arrangement would continue following the sale of the St Marys business to Nalania.
Mr Grey, on behalf of Nalania, sought and received the representations as to the history of commission income at the St Marys office for the purposes of considering the purchase of the business. Obviously, the information was sought by Mr Grey as a guide to future income that might be anticipated. The representations given to Mr Grey were false in material particulars because they included sales attributed to the St Marys office that had in fact nothing whatsoever, on any view, to do with the St Marys office. Secondly, the representations as to historical commission income were grossly inflated by the inclusion of numerous asserted conjunction sales that were not true conjunction sales in the sense that that term is understood within the industry. To that extent, the representations were misleading and deceptive overall in that they gave a completely false picture of the commission income that might be anticipated in the future. For the purpose of dealing with the sale of the business both the seller and the purchaser proceeded on the basis that the St Marys business would continue to receive commission income from conjunction sales shared with the Erskine Park business. The written representations given to Mr Grey were representations as to the historical commission earnings of the St Marys business and also constituted a representation as to the commission income from exclusive listings and conjunction sales that could be anticipated in the future. However, as Mr Bevan conceded under cross-examination, once the St Marys office was sold and operated as a separate business, it would have been impossible to continue to treat sales as conjunction sales if they were not in reality conjunction sales. The conjunction sales represented in the document given to Mr Grey were in large part not conjunction sales at all and should not have been included. I find that the representations were misleading and deceptive in material particulars in that they included sales that were not referrable to the St Marys business and further, that the representations were misleading overall in that they gave Mr Grey and his company a completely false impression as to the future earnings from the business that might be anticipated.
I reject Mr Justice’s submissions that the applicants did not rely upon the representations. Mr Justice made much of Mr Grey’s assertion (later abandoned) that he was given a contractual guarantee of a minimum income of $22,000 per month. Mr Grey asserted a contractual guarantee in his evidence and asserted a breach of contract but later abandoned the assertion and the application before the Court does not include any contractual claim. Ultimately, Mr Grey was forced to concede that although a contractual guarantee had been sought Mr Cunningham rejected it and he accepted that rejection. Mr Justice submits that the applicants must fail in their claim under s.52 because the evidence shows that they did not rely on the representations made in writing to Mr Grey, but rather proceeded on Mr Grey’s false belief that he had a contractual guarantee of a minimum commission income of $22,000.
I reject that submission. Mr Grey was confused and contradictory in his evidence concerning the asserted contractual guarantee. He ultimately admitted that he accepted Mr Cunningham’s refusal to put any condition in the contract and I accept that evidence. What is clear to me from Mr Grey’s evidence is that he was seeking to buy a profitable business. In discussions between him and Mr Cunningham he had worked out that the business would need to earn at least $15,000 per month to make a profit. Mr Cunningham’s recollection is that Mr Grey sought a guarantee that at least $15,000 in income would be generated each month. Mr Grey’s recollection was that the figure he sought was $22,000. Whatever the figure was, it is clear that Mr Grey was seeking assurances that the business would generate sufficient income to make a profit. He was acting as a director of Nalania for the purposes of a prospective purchase by Nalania. Mr Grey wanted a contractual guarantee, but he could not get it. So he sought, and got, the next best thing which was a written set of representations as to the income that had been generated since the business opened and by extension of reasoning that was also a representation as to the income that could be expected to be generated by the business in the future. Mr Grey presented as a somewhat naïve individual but he was not a complete fool. He was not going to buy a loss making business. In my view, the written representations as to the commission income purportedly generated by the St Marys business were fundamental to Mr Grey’s decision to proceed with the purchase on behalf of Nalania. It was the closest thing that he could get to a guarantee of profitability.
Mr Justice further submits that Mr Grey did not rely on the representations made to him because of his conduct after the purchase in being actively involved in the running of the business. This was in stark contrast to Mr Grey’s assertion that he wanted to be a “passive investor”. I accept that, contrary to his expressed intentions, Mr Grey did become actively involved in the running of the business very shortly after he purchased it. However, that evidence does not support the proposition for which Mr Justice contends. The issue is not whether Mr Grey continued to rely on the representations made to him following the purchase of the business. The issue is whether Mr Grey relied on the representations for the purpose of making the purchase. Mr Grey’s decision to involve himself in the running of the business shows that he lost confidence in the representations following the purchase. It does not show that he did not rely on them before the purchase. I find that he, and through him Nalania, did so rely on the representations.
Mr Justice further submits that the Court should not find that Mr Grey relied upon the entirety of the list of sales, but only the asserted sales for the 12 months preceding the purchase of the business by Nalania. I accept that, logically, the asserted commission income earned by the business in the period immediately preceding the sale to Nalania was more important than asserted commission income earned in earlier time periods. Nevertheless, Mr Grey sought and got representations as to the earnings of the St Marys office for the entire period since it opened. That was prudent as otherwise the commission figures for a limited period might not have been representative. There is no persuasive evidence that Mr Grey was influenced by only a portion of the commission figures contained in the representations. While the figures for the final 12 months were probably more important to him, I find that he was influenced by the representations in their entirety. Even if that were not the case, it would not make any difference because I have already found that the representations were false and misleading as a whole and not simply in respect of certain particulars.
The next issue to consider is whether the applicants suffered loss or damage as a result of their reliance upon the representations. The applicants seek damages pursuant to s.82 of the TPA. Applicants, under s.82, must show that they have suffered loss or damage by the conduct of another person that constitutes a contravention of part V of the TPA. This has been interpreted to mean that the loss or damage must be caused by reason of or as a result of that contravening conduct. Accordingly, it is only loss or damage that is caused by the contravening conduct which can be recovered under s.82. That is, there must be a causal connection between the conduct and the loss for which the applicants seek to be compensated. Generally, the causal link will not be broken because of a failure on the part of the applicants to take reasonable care: Neilsen v Hempston Holdings Pty Ltd (1986) ATPR 40-686. Mr Grey was a rather naïve purchaser. It was apparent from the representations made to him that around 75 per cent of the sales attributed to the St Marys office were so called conjunction sales. That fact should have indicated that the business was only viable to the extent that it maintained a close relationship with the Erskine Park business. It would have been wise for Mr Grey to have gone behind the representations and sought more evidence of the income generated by the St Marys office. However, it is explicable that he did not do so. The representations showed a close business connection to the Erskine Park office and Mr Cunningham had given an assurance that there would continue to be a conjunction sales arrangement between the two businesses. What Mr Grey did not know was that the conjunction sales asserted in the representations were substantially made on a basis that could not possibly continue after the sale of the St Marys business. In the circumstances, Mr Grey was reasonably entitled to rely upon the representations made to him for the purposes of the purchase of the business. I find that the chain of causation was not broken by any act or omission by Mr Grey.
As to the calculation of loss or damage, s.82 does not of itself set out how a court is to assess the amount of loss or damage suffered by an applicant. There is no requirement that loss or damage be assessed in any different way than under the general law and neither is there any necessary restriction to common law conceptions as to the nature and extent of any damages recoverable. Financial loss as well as physical injuries to any persons or property is clearly recoverable. It seems well settled that the measure of damages under s.82 approximates the damages recoverable in tort and in most cases, especially those involving misleading and deceptive conduct and the making of false statements, the measure of damages in tort is appropriate. In Brown v Jam Factory Pty Ltd (1981) 53 FLR 340 at 351, Fox J set out the proper approach to the assessment of damages:
The correct way to approach the assessment of damages in this case, in my view, is to compare the position in which the applicants might have been expected to be in if the misleading conduct had not occurred with the situation that they were in as a result of acting in reliance on that conduct.
In these proceedings the applicants have established that they were induced by the false and misleading representations made to Mr Grey to purchase the St Marys business in the expectation that it was viable. The purchase price was $85,000. In reality, the business was not viable in its own right. On Mr Cunningham’s evidence, the St Marys office was opened to increase the exposure of the Erskine Park office. It substantially operated merely as an extension of the Erskine Park office. Mr Bevan thought that around 60 per cent of the sales income generated by the St Marys office were conjunction sales with the Erskine Park office (or occasionally with the independent Minchinbury business). The representations made to Mr Grey indicated that the figure was more like 75 per cent. Mr Justice extracted from Mr MacKinnon under cross-examination an admission that in January 2002 only about three properties were listed for sale by the St Marys office whereas between 40 and 50 properties were displayed in the office window as properties for sale. On Mr Bevan’s evidence, persons expressing interest in properties displayed in the window at the St Marys office were routinely referred to the Erskine Park office. Mr Bevan put that down to convenience and efficiency but I believe that there were other factors. An obvious factor is that the vast majority of the properties displayed for sale at the St Marys office were listed for sale at the Erskine Park office. That is where the business conducted by the respondents operated from. The St Marys office was little more than a window display. Secondly, Mr Bevan had a financial interest in Lonori. Although Mr MacKinnon was nominally the managing agent at the St Marys office I accept Mr Justice’s submission that he was merely a “nameplate”. Although he was the licensee of the St Marys office he did not know what went on there. Mr Cunningham ran the Lonori business as a whole and Mr Bevan was the effective manager of the St Marys office and occupied a position of influence in the business as a whole. Mr Bevan was in a position to arrange sales to suit his convenience. It suited his convenience to refer purchasers to the Erskine Park office in the knowledge that he would still be credited with commission sales income by Mr Cunningham.
When Mr Grey took over the St Marys business he quickly became dissatisfied with Mr Bevan. He was also concerned when he discovered that Mr Bevan had a financial interest in Lonori. Although Mr Bevan disputes that there was a proper basis for his dismissal by Mr Grey, his own evidence indicates to me that he did not actively promote the St Marys office as an independent business. Prior to the sale of the St Marys business he did not need to. Following the sale, he had conflicting interests.
It is impossible to believe that even a naïve purchaser like Mr Grey would have proceeded with the purchase of the St Marys business if the true facts had been known by him. The proper measure of damages is the difference between what Nalania paid for the business and what it was actually worth. I have no reliable evidence before me that the St Marys business was in reality worth anything to anyone other than Lonori. It was worth something to Lonori because it increased the exposure of Lonori’s business and generated additional income. However, as an independent business, it was simply not viable. It could not make a profit. The respondents assert that the business ultimately failed because of Mr Grey’s incompetence. However, Mr Grey has been in the real estate business for 35 years and I do not take him to be a complete fool. I do not believe anyone could have made the business operate profitably as an independent business from Lonori. The office would have had to close regardless of who was running it. I find that the St Marys business only had value to Lonori. To anyone else, it was effectively worthless. Accordingly, I find that the loss or damage suffered by the applicants is the purchase price paid for the business, namely $85,000.
I reject any other damages claim by the applicants. The claim for loss of profits of $10,000 per month is misconceived. The applicants are not entitled to be put into the position that they would have been in if the representations had been true. Neither is Mr Grey entitled to any personal remuneration. How he chose to operate the business following the purchase was his own responsibility. The asserted loss is also too remote from the misrepresentations to be recoverable.
I will award interest up to judgment from the date of the purchase of the business by Nalania (the completion date was 30 December 2002 according to exhibit R4) at the rate of 10.5 per cent. Interest is payable on the judgment without any order, pursuant to s.77 of the Federal Magistrates Act 1999 (Cth) and rule 26.01 of the Federal Magistrates Court Rules 2001 (Cth) (“the Federal Magistrates Court Rules”).
Mr Justice has put in issue which of the respondents should bear the liability found by the Court. He submits that Mr Cunningham should not be held liable because he is a natural person, not a corporation and s.52 only applies to corporations. Secondly, Mr Justice submits that there was no claim against Mr Cunningham pursuant to the extended operation provisions of the TPA. Thirdly, Mr Justice submits that Mr Cunningham should not bear liability as he was not the licensee of the St Marys office and neither was he the office manager. He submits that accordingly, he was under no obligation to verify the accuracy of the representations he made.
Mr Justice’s submissions stand in stark contrast to the respondents’ outline of case filed in court on 26 July 2004, which asserts that Lonori bears no liability because the representations were made by a natural person rather than by the corporation. There is of course no substance to that argument as Mr Cunningham is the sole director of Lonori and was obviously acting on behalf of Lonori when he made the representations to Mr Grey. Lonori, being a corporation, could only act through natural persons such as its directors, servants or agents. Lonori acted through Mr Cunningham in relation to the sale of the St Marys business. Mr Cunningham was acting on behalf of Lonori when he made the representations to Mr Grey, who was acting on behalf of Nalania. Both acted within the scope of their actual or apparent authority as a director. Lonori is clearly liable to pay damages.
However, the applicants have not established a basis of liability against Mr Cunningham. The applicants have not advanced anything supporting the application of the extended operation provisions of the TPA so as to establish liability against Mr Cunningham as a natural person. There is no claim under the Fair Trading Act of New South Wales. In the circumstances, the only respondent against which liability has been established is the corporation, Lonori. The application against Mr Cunningham should be dismissed.
Costs should follow the event in this case. The applicants should have their costs against Lonori, assessed by reference to the scale of costs in schedule 1 to the Federal Magistrates Court Rules. Mr Cunningham should have his costs against the applicants assessed on the same basis.
I reject Mr Justice’s submission that Mr Cunningham should have his costs on an indemnity basis. The proceedings were instituted by Mr Grey as a litigant in person and conducted by him initially on that basis. The proceedings were not conducted improperly and they were conducted competently from the time Mr Leybourne was instructed to act.
I certify that the preceding one hundred and thirty (130) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 7 February 2005
- AGLC
- Nalania Pty Ltd v Lonori Pty Ltd [2005] FMCA 1
- Case
- [2005] FMCA 1
- Decision Date
CaseChat Overview and Summary
The court was tasked with determining the enforceability of the agreement and whether the first respondent had breached the contract and made misrepresentations. A further issue was whether the second respondent was liable for any of the alleged breaches. The court had to assess the evidence presented, including the terms of the contract, the conduct of the parties, and the impact of any alleged misrepresentations.
The Federal Magistrates Court found that the agreement between the parties was valid and enforceable. The court held that the first respondent had breached the contract and made misrepresentations, leading to the award of damages. The court concluded that the second respondent was not liable for any of the breaches or misrepresentations. Consequently, the first respondent was ordered to pay damages of $85,000 plus pre-judgment interest to the applicants, along with their costs. The application against the second respondent was dismissed, and the applicants were ordered to pay the second respondent’s costs.
Orders
Orders of the court
1.
The first respondent shall pay damages of $85,000 to the applicants plus pre-judgment interest from 30 December 2002 at the rate of 10.5 per cent.
2.
The first respondent shall pay the applicants’ costs of the proceedings in accordance with the Federal Magistrates Court’s scale of costs.
3.
The application against the second respondent is dismissed.
4.
The applicants shall pay the second respondent’s costs of the proceedings in accordance with the Federal Magistrates Court scale of costs.
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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