Nebula Star Pty Ltd v Jonathan Alexander Ockwell, Christopher John Ockwell and Anne Elizabeth Ockwell

[2002] WADC 155

JURISDICTION     :   DISTRICT COURT OF WESTERN AUSTRALIA

IN CIVIL

LOCATION:   PERTH

CITATION:   NEBULA STAR PTY LTD -v- JONATHAN ALEXANDER OCKWELL, CHRISTOPHER JOHN OCKWELL AND ANNE ELIZABETH OCKWELL & ANOR [2002] WADC 155

CORAM:   MULLER DCJ

HEARD:   4-12 JUNE 2002

DELIVERED          :   30 JULY 2002

FILE NO/S:   CIV 2284 of 1998

BETWEEN:   NEBULA STAR PTY LTD (ACN 009 368 610)

Plaintiff

AND

JONATHAN ALEXANDER OCKWELL, CHRISTOPHER JOHN OCKWELL AND ANNE ELIZABETH OCKWELL
First Defendants

ATMI PTY LTD (ACN 009 428 451)
Second Defendant

(BY ORIGINAL ACTION)

JONATHON ALEXANDER OCKWELL, CHRISTOPHER JOHN OCKWELL AND ANNE ELIZABETH OCKWELL
Plaintiffs

AND

NEBULA STAR PTY LTD (ACN 009 368 610)
First Defendant

DANIEL TREVOR DE SILVA
Second Defefndant

(BY COUNTERCLAIM)
 

Catchwords:

Contract - Breach of contingent condition - First defendants purchased business on behalf of second defendant which was subject to control of first defendants - Payment of balance of purchase price subject to negotiation by second defendant of new lease of business premises with City of Fremantle - Whether first and second defendants used best endeavours to obtain lease on behalf of second defendant - Competing offer to lease business premises made by first defendants - Whether conduct by first and second defendants constituted breach of agreement - Section 52 Trade Practices Act - Counterclaim by first defendants for damages for misleading conduct - Alleged misrepresentation by plaintiff's agent as to value of business - Measure of damages applicable

Legislation:

Trade Practices Act, s 52

Result:

Judgment in favour of plaintiff.  Counterclaim dismissed

Representation:

Original Action

Counsel:

Plaintiff:     Mr P McMillian

First Defendants           :     Mr I R Freeman

Second Defendant         :     Mr I R Freeman

Solicitors:

Plaintiff:     Gibson Tovey Mills

First Defendants           :     Phillips Fox

Second Defendant         :     Phillips Fox

Counterclaim

Counsel:

Plaintiffs:     Mr I R Freeman

First Defendant             :     Mr P McMillian

Second Defefndant        :     Mr P McMillian

Solicitors:

Plaintiffs:     Phillips Fox

First Defendant             :     Gibson Tovey Mills

Second Defefndant        :     Gibson Tovey Mills

Case(s) referred to in judgment(s):

Blomley v Ryan (1956) 99 CLR 362

Edgar & Ors v Farrow Mortgage Services Pty Ltd (in liq) (1992) ATPR (Digest) 46‑096

Foran & Anor v Wight & Anor (1989) 168 CLR 385

Gould & Anor v Vaggelas & Ors (1985) 157 CLR 215

Johnson v Gore Wood & Co [2001] 2 WLR 72

March v E & MH Stramare Pty Limited & Anor (1991) 171 CLR 506

Paltara Pty Ltd & Anor v Dempster & Ors (1991) 6 WAR 85

Perri & Anor v Coolangatta Investments Pty Ltd (1982) 149 CLR 537

Stern v McArthur (1988) 165 CLR 489

Wardley Australia Ltd & Anor v The State of Western Australia (1992) 175 CLR 514

Wenham & Anor v Ella (1972) 127 CLR 454

Case(s) also cited:

Amber Holdings (Aust) Pty Ltd v Polona Pty Ltd [1982] 2 NSWLR 460

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549

Australian Wheat Board v Reardon Smith Line Ltd (1954) 91 CLR 233

Bennett v Minister of Community Welfare (1992) 176 CLR 408

Breen v Williams (1996) 186 CLR 71

Butt v M'Donald (1896) 7 QLJ 68

Cambridge Credit Corporation Ltd v Hutcheson (1985) 9 ACLR 545

The Commercial Bank of Australia Ltd v Amadio & Anor (1983) 151 CLR 447

Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318 29 ER 1184

Erley Pty Ltd v Gunzburg Nominees Pty Ltd, unreported; SCt of WA; Library No 980153; 3 April 1998

Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1

Government Employees Superannuation Board v Martin (In Receivership) [1995] 3 NZLR 396

Haira v Burbery Mortgage Finance & Savings Ltd (In Receivership) [1995] 3 NZLR 396

Hellyer Drilling Co v Macdonald Hamilton & Co Pty Limited (1983) 51 ALR 177

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 2) (1989) 40 FCR 76

Henville v Walker [2001] HCA 52

Hospital Products Ltd v United States Surgical Corporation & Ors (1984) 156 CLR 41

Kennedy v Vercoe (1960) 105 CLR 521

Kettles and Gas Appliances Limited v Anthony Hordern and Sons Limited (1934) 35 SR (NSW) 108

Laurinda Pty Ltd v Ors v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623

Legione & Anor v Hateley (1983) 152 CLR 406

MacKenzie v Rees & Anor (1941) 65 CLR 1

Marks & Ors v GIO Australia Holdings Ltd & Ors (1998) 196 CLR 494

Misiaris & Anor v AFC Holdings Pty Ltd (1988) 15 NSWLR 231

Moody v Cox & Hatt [1917] 2 Ch 71

Nullagine Investments Pty Ltd v The Western Australian Club Inc (1992) 177 CLR 635

Paper Sales (Aust) WA Pty Ltd v PSA Pty Ltd (1991) ATPR 41-142

Pilmer v The Duke Group Ltd (in liq) [2000] HCA 31

Re Theodorou [1993] 1 Qd R 588

Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516

Secured Income Real Estate Australia Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596

Taco Company of Australia Inc & Anor v Taco Bell Pty Ltd & Ors (1982) 42 ALR 177

Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689

Waltons Stores (Interstate) Ltd v Maher & Anor (1988) 164 CLR 387

Wigan v Edwards (1973) 47 ALJR 586

1. MULLER DCJ:  In this action the plaintiff claims from the first defendants and the second defendant the balance of the purchase price of a business sold by the plaintiff to the second defendant or alternatively damages suffered as a consequence of the alleged breach by the first defendants and the second defendant of their obligations arising under the agreement for the purchase of the business.  The business was allegedly purchased for $470,000 of which the plaintiff claimed $250,000 was required to be paid by the second defendant on settlement and the balance in instalments subject to the conditions that the second defendant obtain from the City of Fremantle a renewal for an 8 year term of the lease of the premises on which the business was conducted and a liquor licence.  The second of these conditions was fulfilled and a liquor licence obtained but the plaintiff alleges that the first defendants and the second defendant, contrary to an implied term of the agreement for the purchase of the business, failed to use their best endeavours to obtain a renewal of the lease and that the first defendants, who were directors and shareholders of the second defendant, submitted a competing tender on behalf of another company which they controlled for the lease of the business premises on more favourable terms which proved to be successful.  The plaintiff asserts that it is entitled by the second defendant's contractual breach to treat the condition precedent as having been satisfied and claim payment of the balance of the purchase price or alternatively repudiate the agreement and recover damages for its loss.  The first defendants counterclaim for damages arising out of an alleged misleading representation made on behalf of the plaintiff which, they claim, induced them to enter into the agreement and pay too much for the business.

Evidence of the plaintiff

1. The directors and shareholder in the plaintiff company were Daniel Trevor De Silva and his wife although the former has been the sole director and shareholder since 14 October 1997.  On 25 July 1989 the plaintiff purchased the business in South Terrace, Fremantle, for $130,000.  The premises on which the business was operated were leased from the City of Fremantle for a period of three years from 5 December 1987 with two options to extend the term for further periods of three years respectively which, if exercised, carried the lease through to 5 December 1996.  The first three-year term of the lease ended on 4 December 1990 and the plaintiff exercised its first option under the agreement to extend the lease for a three-year period to 5 December 1993.  At about this time De Silva decided to change the nature of the business from a coffee shop to a café.  Considerable expenses were incurred in re‑fitting the premises during the months of July and August 1993 and the name of the business was changed to that of the Aria Café.

2. The income of the business fluctuated according to the season.  In De Silva's experience as the proprietor of the café the income during the summer months was greater than during the winter months.  Having incurred major expenses in re‑fitting the café Nebula exercised its second option under the lease agreement in late 1993 and extended the lease with the City of Fremantle for a second three-year period to 5 December 1996.  Given the investment he had made De Silva anticipated extending the lease of the premises after December 1996 and to that end had discussions with a representative of the Fremantle City Council.  He claimed he did not foresee any difficulty in obtaining another extension of the existing lease for a three-year term with two further options of three years or for a five-year term with an option for a further five years.  His belief that the City of Fremantle would agree to those periods of extension was based upon his own experience at about the same time after negotiating a five year lease with an option to renew for a further period of five years from the City of Fremantle in relation to other business premises from which he also operated a café.

3. It was at about this time that De Silva wrote to the Fremantle City Council asking for a new lease of the premises.  This application was rejected. 

4. It was in March 1995 that Jonathan Ockwell, the first named first defendant, spoke to De Silva and expressed interest in purchasing the business.  Although De Silva claimed his initial reaction was not enthusiastic he agreed to discuss the matter with his wife and, during the course of later discussions with Jonathan Ockwell, he mentioned he had received an earlier offer in excess of $400,000 for the business.  He also said he told Ockwell the lease for the premises was due to expire in 21 months but believed the prospects of negotiating a new lease or an extension with the City of Fremantle were certainly favourable.  De Silva went on to claim the discussions then turned to the term of any possible renewal of the lease and the possibility of obtaining a liquor license.  It was in this context, according to De Silva, that he told Ockwell he had already leased other premises belonging to the City of Fremantle for a period of five years with an option to renew for a further period of five years and that he could see no reason why a purchaser of the business would not be able to renew the lease for a reasonable term.  Discussions on these issues and others relating to the proposed sale of the business continued, according to De Silva, over the period late March to early June 1995.  During this time Jonathan Ockwell was a regular visitor to the business premises and, in the course of one of these discussions, asked De Silva what the income of the business was.  De Silva told him that the turnover was between $12,000 - $14,000 per week.  De Silva went on to say that Ockwell then asked him what the average turnover of the business was.  De Silva said he told Ockwell that the winter months were relatively quiet but that in summer the takings were considerably higher and peaked during the festive season over Christmas and New Year.  He denied that he ever said what the average turnover of the business was.

5. According to De Silva this was not an isolated discussion.  On several occasions when he met Jonathan Ockwell the conversation turned to the financial side of the business and, according to De Silva, he frequently told Ockwell what the previous week’s takings had been.  In the end he claimed that Ockwell asked for him for the books of the business and he gave Ockwell the deposit books, cheque books, invoices, receipts, cash books and profit and loss statements for the period 1 July 1993 to March 1995.  In late May or early June 1995 he claimed he also gave Ockwell more current figures relating to weekly takings which he had recorded in several loose pages since the end of March 1995.  De Silva also said he recollected on one occasion Ockwell asking him whether he was taking any "black money" out of the actual takings of the business.  He said he told Ockwell that "you could only take between 5 per cent and 10 per cent of takings."  In later evidence De Silva admitted he had withdrawn approximately $2,000 a week in cash in 1994/5.

6. According to De Silva no other discussion as to the turnover or takings of the business occurred.  De Silva emphatically denied he had given Ockwell the figures reflecting the average sales during different periods of 1994.

7. De Silva said in evidence that, having given Jonathon Ockwell the financial records and discussed the proposed sale with him on several occasions, Ockwell eventually made three alternative proposals to purchase the business.  One of those proposals – which was ultimately accepted by the Plaintiff – was recorded in tabular form by Jonathan Ockwell and shown to De Silva.  That document was received into evidence as Exhibit 10 in the trial.  The document, which was signed both by De Silva and Ockwell, reflects a payment on settlement of $250,000 with a balance of $210,000 payable in 24 monthly instalments of $8,750 and a final payment of $10,000 making a total of $470,000.  De Silva agreed that, in accepting this offer, he appreciated that the balance of the purchase price payable in instalments would only become due and payable if two conditions were fulfilled: first, that the purchaser obtained a liquor license from the City of Fremantle; second, that on the expiration of the current lease the purchaser was successful in obtaining an extension of the lease from the City of Fremantle for a period of eight years.

8. It was after De Silva and Jonathan Ockwell had agreed in principle to what might be referred to as the third proposal that the two agreements were signed by the parties.  The two agreements came into being in this way.  According to De Silva Jonathan Ockwell completed the details in a pro forma document titled an "Agreement to Purchase a Business" (Exhibit 11a). This document, which was signed by both De Silva and Jonathan Ockwell, referred to the gross purchase price as being $470,000 "subject to conditions stated in attached agreement".  The reference to an "attached agreement" was to an accompanying printed document purporting to be an agreement between the plaintiff and the first defendants.  In that printed document, which both De Silva and Jonathan Ockwell also signed at the same time as they signed Exhibit 11a, the payment of the balance of the purchase price of $220,000 was made conditional upon the purchaser obtaining a restaurant license and a renewal of the lease for a period of not less than eight years.  On legal advice De Silva also insisted upon Jonathan Ockwell signing a guarantee on behalf of the second defendant.

9. Following the signing of the two agreements Jonathan Ockwell, according to De Silva, paid him the deposit of $2,500.  On 30 July 1995, the day before settlement was due to take place, a stock take was done and, according to De Silva, Jonathan Ockwell agreed to pay the vendor $2,500 representing the value of the stock in hand.

10. In mid-August 1995, after settlement had occurred, De Silva claimed that Jonathan Ockwell telephoned him and offered to buy several cartons of docket books relating to the business.  According to De Silva Ockwell agreed to pay $750 for these books in addition to the $2,500 he owed the vendor for the stock in hand at the time of sale.  Those two amounts, according to De Silva, were never paid by the purchaser despite several attempts by De Silva to pressure Jonathan Ockwell into paying them.

11. De Silva said in evidence that there was little contact between himself and Jonathan Ockwell between October 1995 and July 1996.  It was only in early July 1996, according to De Silva, that he was told that arrangements had been made for a meeting between the vendor’s and purchaser's representatives at an accountant's office in Applecross.  De Silva said he attended this meeting in company with his partner, Graeme Trelor.  Jonathan Ockwell and several others were present.  De Silva said that at this meeting Jonathan Ockwell claimed the turnover of the business was less than he thought it would be and claimed he had overpaid for the business.  De Silva also said Ockwell demanded $50,000 in an interest free loan from the vendor in order to upgrade the business premises and qualify for a liquor license.  When, according to De Silva, he baulked at the prospect of loaning the purchaser $50,000 Ockwell apparently told him that if the money was not forthcoming the purchaser would not be in a position to pay the instalments of $8,000 per month which would have become due when a new or extended lease was granted.  There were, according to De Silva, further discussions at this meeting relating to the demand of $50,000 and what that money was needed for.

12. Following this meeting there was an exchange of letters between the parties.  In a letter dated 7 August 1996 from Jonathan Ockwell to De Silva (Exhibit 13) the demand for $50,000 was repeated.  The relevant part of the letter reads:

    "… $50,000.00 will need to be spent on the business to enable a liquor license application to be successful. 

    As stated at the meeting the company does not have the funds available to either service the $8,000.00 per month payment plan set out in the initial purchase agreement or meet that liquor license expenditure.  The need to fund that amount was not made clear when we executed our agreement.

    We proposed at the meeting that your company make available to this company an unsecured interest free loan of $50,000.00 for a period of 5 years to enable the conditions in the agreement to be satisfied."

13. In a reply dated 10 July 1996 De Silva, acting on behalf of the vendor, rejected this proposal and called on the purchaser to advise the vendor immediately as to whether the purchaser intended renewing the lease agreement. De Silva said there was no response to this letter.  Subsequently he saw an advertisement from the City of Fremantle inviting tenders for a new lease of the premises and, after discussing the matter with his partner, submitted a tender in order to safeguard the Plaintiff’s interest in the event of the Second Defendant failing to renew the lease in accordance with the contract of sale.  The tender submitted by De Silva was not successful.  It was only subsequent to the rejection of his tender that De Silva learnt the lease had been granted to South Terrace Pty Ltd, a company controlled by the first defendants.

14. Graeme Owen Treloar was a partner in the business with De Silva.  He was not a director of the plaintiff company.  He played no material part in the negotiations leading to the sale of the business.  His involvement in relevant events began with the meeting between the parties in the office of the first defendant's accountant in July 1996.  Treloar confirmed that at that meeting Jonathan Ockwell said he was not happy with the way the business was going and claimed he had been given "rubbery figures" by De Silva.  He apparently went on to say that he needed $50,000 to get a liquor licence and told De Silva that he had to provide the money.  Following this meeting Treloar confirmed that he and De Silva received a letter dated 7 August 1996 from Jonathan Ockwell (Exhibit 13).  With De Silva's consent Treloar said he replied to that letter on 10 July 1996 (Exhibit 14).  It was in this letter that the plaintiff purported to call on the second defendant to confirm it intended to give effect to the conditions in the contract and apply for a renewal of the lease and warned that De Silva might have to take steps himself to secure the lease.  Whether this letter (Exhibit 14) was ever sent is questionable.  No duplicate copy was kept.  Only a typewritten and unsigned draft was introduced into evidence.  Certainly Jonathan Ockwell denied he ever received it and I accept his evidence on this point.  When no response to this letter was forthcoming Treloar confirmed that he and De Silva applied to the City of Fremantle for a lease of the premises in order to safeguard their own interests.  He said he actually lodged the application at the City of Fremantle and when he did so saw what appeared to be a list of tenders in which the name of Ockwell appeared twice.

Evidence of defendant

1. Jonathan Ockwell, who is the first named first defendant in these proceedings, was involved in all the negotiations leading to the purchase of the business by ATMI Pty Ltd.  He described how he, his brother and sister‑in‑law were interested in purchasing the business and during the early phase of the negotiations told De Silva that he was interested in obtaining a restaurant liquor licence for the premises.  He claimed that De Silva told him the premises had been renovated recently with a view to an application for a licence being made and that there would be no need for any further expenses to be incurred for this purpose.  It was at this meeting, which took place at the Café Aria on 15 March 1995, that Jonathan Ockwell said he asked for details of the turnover of the business.  He claimed De Silva told him that the turnover between August to October 1994 was $14,000 per week increasing to $16,000 per week for the period November 1994 – January 1995.  De Silva went on to say that the figure dropped to $13,000 for the period between February 1995 – May 1995 and dropped still further to $9,000 per week in the winter months of June and July 1995.  According to Jonathan Ockwell De Silva also told him that what was described as the "costs of goods percentage" ranged between 26‑28 per cent of weekly turnover while the percentage for wages was 26 per cent.  It was at this same meeting that De Silva told Ockwell that the monthly rental of the premises was $4,400.  Relying on these figures Jonathan Ockwell prepared his own documentation including his projections and discussed these figures with his brother and sister‑in‑law.

2. Approximately 2 weeks after this meeting on 15 March 1995 Ockwell claimed that De Silva gave him the plaintiff's balance sheets and profit and loss statements for the years ending June 1993 and 1994.  (Exhibits 16A and 16B).  These were the only documents, according to Ockwell, that De Silva ever gave him.  He denied De Silva gave him the other financial records of the company, including bank statements, produced in evidence as Exhibit 6.

3. Relying on what De Silva had told him at the meeting on 15 March 1995 the first defendants decided to offer to purchase the business.  In May 1995 Jonathan Ockwell and De Silva completed the two agreements (Exhibit 11A and 11B) and the defendants applied for the necessary finance.  Following the signing of the two agreements the first defendants caused ATMI Pty Ltd to be set up as a vehicle to purchase and operate the business.  Each of the first defendants acquired 100 shares in the company and the plaintiff also acquired 100 shares.

4. Following the sale the business traded under another name but incurred a loss of $51,874 between July 1995 – June 1996.  During the same period Jonathan Ockwell discovered that additional work had to be done to the premises before the City of Fremantle would issue a restaurant licence.  Confronted with this unexpected obstacle he arranged a meeting for 10 July 1996 with De Silva and Treloar.  It was at this meeting, according to Jonathan Ockwell, that De Silva rejected his proposal for a $50,000 loan and instead made a suggestion that ATMI Pty Ltd should sell the business back to De Silva and Treloar for $100,000.  This particular allegation, of course, was denied both by De Silva and Treloar in their evidence.

5. Jonathan Ockwell accepted that he wrote to De Silva on 7 August 1996 confirming the proposal he had made at the meeting of 10 July 1996.  He claimed he did not receive any reply to that letter.  He was adamant he did not receive a letter from De Silva similar to the draft letter (Exhibit 14) which both De Silva and Treloar claimed was sent to him asking what ATMI Pty Ltd intended doing regarding the renewal of the lease.

6. The lease of the premises was advertised and on or about 11 September 1996 Jonathan Ockwell went to the City of Fremantle to collect the necessary tender documents.  He was asked to sign a register before the documents were given to him and he claimed he saw two names on the register one of which was either that of De Silva or Treloar although he could not remember which.  This discovery, he claimed, greatly concerned him because he realised that if De Silva's tender was successful the defendants would be stripped of the premises and would no longer be able to carry on their business.  He said his belief that De Silva intended to submit a competing tender was reinforced by the latter's alleged offer at the meeting in July 1996 to buy back the business for $100,000.  On 13 September 1996 Jonathan Ockwell said he sought advice and subsequently submitted a tender on behalf of ATMI Pty Ltd for a 4 year term with an option of renewal for a further period of 4 years as required by the contract of sale.  Still believing that De Silva might make a competing bid Ockwell agreed he submitted a second tender in the name of South Terrace Nominees Pty Ltd in which he and his brother held shares.  This second tender was for a shorter lease of 5 years at a higher rental.  In making that tender Ockwell said he believed that, in the event of the ATMI tender being rejected, he and his co‑defendants would at least be able to compete with any tender submitted by De Silva or any other member of the public.  In preparing the South Terrace tender Ockwell agreed he had relied on material from the City of Fremantle providing the rental range for properties in the vicinity of the leased premises.  The South Terrace tender was for a period of 5 years at a rental of $5,583 a month compared with the ATMI tender which was for a period of 8 years at $5,178 per month.  On 4 November 1996 he said he received two letters from the City of Fremantle indicating that the ATMI tender had been unsuccessful but that a lease had been awarded to South Terrace Nominees Pty Ltd.

7. Jonathan Ockwell was adamant that had he known the turnover of the business in 1995 was not as had been represented by De Silva on 15 March 1995 but rather an annual turnover of $509,000 as reflected in the taxation returns of Nebula Star Pty Ltd he and his co‑defendants would not have purchased the business or, if they had, would have paid only for the equipment on the premises.

Findings on credibility

1. Apart from denying many of the details surrounding the negotiations between the parties before the purchase of the business and some of the events which followed after the agreement had been finalised the main thrust of the defendants' attack on De Silva related to his alleged representations as to the turnover of the business.  His credibility was called into question by revelations that information relating to the turnover of the business which De Silva had provided to the taxation authorities conflicted materially with the financial records of the business.  I was left in no doubt that substantial conflicts did exist.  Without going into unnecessary detail it is quite apparent, both from what De Silva conceded in cross‑examination and from the financial records and taxation returns themselves, that he consistently and substantially misrepresented the financial returns of the business in his taxation returns.  While there was a dispute as to what documents De Silva gave Jonathan Ockwell prior to the sale it was common cause that Ockwell did receive several balance sheets and profit and loss statements for the years 1992, 1993 and 1994 (Exhibits 16A and B).  A comparison of the gross sales of the business and the declared operating profit before and after tax disclosed in these documents with the taxation returns submitted by De Silva during this period reveals substantial discrepancies.  I will mention only a few of the examples that were highlighted during the cross‑examination of De Silva.  The balance sheet for the business as at 30 June 1994 revealed total sales of $686,792 and an operating profit after tax of $94,061.  The corresponding tax return for the same period showed a total income of $486,958 and a taxable loss of $83,304.  It is impossible to reconcile these figures.  The same observation can be made in respect of the financial year ending June 1993.  The profit and loss statement for the year ended 30 June 1993 (Exhibit 16A) shows sales totalling $488,835 and an operating profit after tax of $86,215.  Although the tax return for that year was not introduced into evidence De Silva agreed the business would not have paid any income tax for the year ending 1993.  Similar criticisms were justifiably made in respect of the income tax return for the year ending June 1995.  The figures contained in that return simply could not be reconciled with the financial records of the business.

2. The conflicts did not end there.  De Silva also agreed that in a series of annual returns signed by him and submitted to the Australian Securities Commission between 1993‑1995 he misrepresented the turnover of the business by declaring an operating loss of $14,906 for the year ending June 1993 and a loss of $27,245 for the year ending 1994.  In the year ending June 1995 the return signed by De Silva disclosed an operating loss after tax of $60,952.  These alleged losses conflict materially with the figures for sales and operating profits shown in the balance sheets and profit and loss statements relating to the business for the corresponding period (Exhibits 16A and B).

3. When asked to explain these material discrepancies De Silva agreed that he had misrepresented the figures contained in the annual taxation returns and the annual returns to the Australian Securities Commission.  The correct figures, he asserted, were contained in the financial records of the company, such as the balance sheets and profit and loss statements already referred to.  His explanation was that he wanted to pay the least amount of tax possible.  He denied, however, the suggestion that the figures reflected in the taxation returns were, in fact, correct and that he had deliberately inflated the figures contained in the balance sheets and profit and loss statements which comprise Exhibit 16A to induce the first and second defendants to purchase the business.

4. While I am unable to find that De Silva deliberately inflated the figures contained in Exhibits 16A and 16B  to influence the defendants into purchasing the business I am satisfied his admission that he manipulated the trading figures for taxation purposes reflects adversely on his credit.  He persistently manipulated those figures over a period of at least 3 years to suit his own purposes.  His readiness to distort the trading figures for his own ends is, I believe, a reflection of his general lack of honesty.  It does suggest, as far as I am concerned, a willingness to manipulate figures in order to achieve the desired objective.  Had the misrepresentations not been so gross, or so persistent in their nature, I might have been able to find a less sinister explanation for his having behaved in the way he did.  As it is the discrepancies are so material and so repetitive as to leave me with no option other than to conclude that De Silva may not be a truthful witness when his own interests are at stake.  His inclination to manipulate his trade figures dishonestly has led me to conclude his denial that he told Ockwell the average weekly turnover of the business was $13,667 broken down in the manner alleged by Ockwell may not be true.

5. Further doubts as to De Silva's veracity arise from the figures revealed in Exhibit 15 and the tax return for the year ending June 1995.  In each of those documents a figure of approximately $510,000 was given as the annual turnover of the business in the months preceding the date of sale.  De Silva agreed in cross‑examination that if those figures were correct the average weekly takings of the business would have been less than $10,000 whereas, on his own admission, he told Ockwell on 15 March 1995 that sales averaged between $12,000‑$14,000 weekly.

6. While the evidence of Jonathan Ockwell was strongly challenged in cross‑examination, and there were aspects of his testimony which were not altogether convincing, I did not find him to be an unsatisfactory witness.  His explanation for having relied on the alleged oral representations made by De Silva at the meeting on 15 March 1995 and the balance sheets and profit and loss statements comprising Exhibits 16A and 16B, without insisting on the production of the plaintiff company's other financial and business records, was very surprising.  This is particularly so because he knew that under the agreement Exhibit 11B the plaintiff was under a contractual obligation to provide him with all its business and financial records.  Ockwell admitted he simply relied on what he was given and did not press for the documentation he was entitled to.  His readiness to accept what he was given and ask for nothing more certainly reveals a surprising degree of naiveté but nothing more.  I accept his assertion that the plaintiff did not give him the other records of the company produced in the trial as Exhibit 6.  Everything Ockwell did, including the presentation of his business plan to the bank, was consistent with his having to rely only on the oral representations reinforced by the material contained in Exhibits 16A and 16B.  He was also criticised for failing to note the discrepancy between the 1993 turnover figures in the profit and loss statements comprised in exhibits 16A and 16B.  That criticism was, in my view, unfounded.  I can readily understand how he overlooked that detail.  The profit and loss statements, which were obviously prepared by an accountant, are not altogether clear and there is nothing to indicate that the figures in the left hand column of each statement relate to the previous year's sales.  A person with accounting experience might see the discrepancy and realise cash must have been taken out of the business.  But someone without that experience might simply overlook the discrepancy particularly as its existence required a comparison of two sets of figures in two different documents.

7. The most telling criticism of Ockwell's evidence related to the inconsistency between the original counterclaim and the amended counterclaim.  The original pleading by the defendants alleged that in about May and June 1995 De Silva represented to the first defendants that the business was achieving an average weekly turnover of $14,333.  That pleading was subsequently amended by the allegation that on 15 March 1995 De Silva represented to the first defendants that the business was achieving variable weekly turnovers depending upon the season and broken down to the amounts set out in par 14.1 of the counterclaim.  When cross‑examined on this amendment the witness had to concede that, contrary to what the original pleading asserted, De Silva had never represented that the average weekly turnover of the business was $14,333.  He admitted this figure was his own calculation based on what he remembered De Silva telling him at the time.  He said he gave his lawyers this information because, at the time the original counterclaim was prepared, he was otherwise preoccupied and did not believe the matter would proceed to trial.  When the matter did proceed to trial he explained how his lawyers had asked for more detailed information and, on looking back to earlier diary entries and, in particular, to an entry of 15 March 1995, he came upon a note of the actual figures as broken down by De Silva.  He seemed to agree he had no independent recollection of those figures but said the diary entry jogged his memory and he was now able to recall them.

8. Other criticisms of Ockwell as a witness related to his evidence as to the meeting on 3 July 1996 and the submission of the tender documents on behalf of ATMI Pty Ltd and South Terrace Nominees Pty Ltd.  At the meeting on 3 July 1996 it was suggested that Ockwell never used the opportunity, as he might be expected to have done, to accuse De Silva of having misrepresented the trading figures provided more than 12 months earlier on 15 March 1995.  Ockwell's response was that he told De Silva there was a difference between what he expected the business to achieve and what its actual performance had been.  Although he could not recollect his exact words he claimed he told De Silva the projected figures had not been realised.  Contrary to what De Silva had said in evidence he denied that he told De Silva and Treloar that ATMI Pty Ltd would not pay the outstanding balance of the purchase price due under cl 7 of Exhibit 14B.  He said he told De Silva and Treloar that, based on its financial performance, ATMI Pty Ltd would be unable at that time to make the proposed payments.

9. Ockwell's evidence in relation to the submission of the two offers to lease the premises on behalf of ATMI and South Terrace Nominees Pty Ltd was also the subject of criticism.  The witness denied he deliberately included De Silva's name in the ATMI offer to lease the premises because he knew the City of Fremantle regarded De Silva unfavourably as a tenant and that he hoped the disclosure of De Silva's association with ATMI's tender would lead to its rejection.  He claimed he lodged the South Terrace tender because of his apprehension that De Silva might put in a competing tender and also because he believed ATMI's offer to lease the premises for a period of 8 years, which did not conform with the City of Fremantle's requirements, might lead to the rejection of that tender in favour of another competitor.

10. While Jonathan Ockwell's evidence may not have been satisfactory in every respect, I did not find any parts of his testimony to be unbelievable or unreliable.  The explanations he gave in cross-examination were, in my view, both convincing and plausible.  I gained the impression he was a direct and forthright witness who was prepared to make concessions against his own interest.  He had a good recollection of critical events assisted by diary entries and other notes he had made at the time.  I would describe his demeanour as positive and assured.  I prefer his evidence to that of De Silva in relation to those issues where there is a material conflict.  I say this notwithstanding the limited support De Silva received from his business partner Graeme Treloar.  It is true that Treloar's evidence as to the meeting on 3 July 1996 supported De Silva's account and it differed from that of Jonathan Ockwell.  Contrary to Ockwell's assertion that De Silva offered to buy the business back for $100,000, Treloar said that no such suggestions were made and no figure was mentioned.  While Ockwell denied having agreed to express his grievance in writing at that meeting Treloar supported De Silva's assertion that Ockwell undertook to confirm in writing what he had said at this meeting.

11. I accept Treloar was a truthful witness who, like Jonathan Ockwell, was doing his best to recollect events which occurred several years ago.  Treloar had a substantial financial interest in the transaction but I believe he did his honest best to relate the events as he remembered them.  While there are some significant differences between his testimony and that of Jonathan Ockwell, particularly in relation to the events of the meeting on 3 July 1996, I do not believe such differences are sufficiently material to cast doubt on Ockwell's veracity or the reliability of his evidence as a whole.  The other alleged conversations said to have occurred between Treloar and Ockwell related to peripheral matters and, in my view, are of no real significance in any assessment of their credibility.

12. Taking everything into consideration I believe I can safely accept what Jonathan Ockwell said in his evidence.  I find that De Silva did make the representations alleged in par 14 of the Amended Counterclaim on 15 March 1995.  I am also satisfied that the only documents given to Jonathan Ockwell by De Silva were those produced as Exhibits 16A, B and C.  I accept that Ockwell and his co-defendants relied on the oral representations made by De Silva on 15 March 1995 in deciding to purchase the business.  In considering the defendants' counterclaim I will have to decide whether those representations were misleading as alleged.

Failure to use best endeavours

1. In his evidence De Silva described how he and Jonathan Ockwell signed two documents relating to the sale of the business.  He believed he signed the document entitled "Agreement of Purchase and Sale" dated 13 June 1995 first and then both he and Jonathan Ockwell signed the second agreement (11B) that had been prepared by Phillips Fox.  In my view he described the sequence in which the documents were signed incorrectly.  For reasons I will explain shortly it seems clear that De Silva and Jonathan Ockwell must have signed the document entitled "Agreement" (Exhibit 11B) first.

2. I propose to deal with each agreement in some detail because of the significant consequences, as I see them to be, flowing from the two contracts.  As I have just said I believe the first agreement signed by the parties must have been the document entitled "Agreement" and introduced into evidence as Exhibit 11B.  The parties to this agreement were Nebula Star Pty Ltd represented by De Silva and the three defendants Jonathan Ockwell, Christopher Ockwell and Anne Ockwell.  Clause 2.2 of this agreement stipulated that the parties had agreed that a new company was to be formed and that Nebula Star Pty Ltd would sell the business to that company on the terms and conditions set out in the agreement.  Although the new company was named in the agreement as Newco it was, in fact, the second defendant ATMI Pty Ltd.  Clause 3 of the agreement provided that, subject to Jonathan Ockwell having access to a full list of the assets of the business, the financial and business records of the vendor and other relevant material, he, Jonathan Ockwell, was to incorporate ATMI in which both he and the other two first defendants were to acquire shares and a further parcel of shares were to be issued to the plaintiff.  Clause 4 of the agreement related to the sale of the business to ATMI on or before 31 July 1995 for a purchase price of $250,000 payable on the settlement date.  Clause 4.3 of the agreement stipulated that Nebula and ATMI were to enter into a sale and purchase agreement using the standard REIWA (Inc) Sale of Business Agreement a copy of which was attached.  This document, in fact, was the one De Silva believed had been signed first and was introduced into evidence as Exhibit 11A.  I will turn to that document later.  Clause 6 of the agreement required Ockwell to conduct the running of the business after the settlement date in a proper manner and in a manner which was fair and equitable to Nebula as a shareholder of ATMI.

3. Clause 7 of the agreement provided as follows:

   "7.APPLICATION FOR A FURTHER LEASE

   7.1In the event that Newco is able to secure a further lease of the business premises for a period of not less than eight years (made up either as a single term or a term of four years with a further option of four years) and provided that Newco is successful in applying for a restaurant licence for the business premises issues under the Liquor Act, upon the happening of both of these events:

   7.1.1Newco shall pay to Nebula twenty four consecutive monthly instalments of $8,750 each the first of such payments to be made 7 days after the commencement of the new lease.

   7.1.2Upon the payment of the final monthly instalment of $8,750, Newco shall be required to make one further payment to Nebula of an amount of $9,900 and such payment shall be required to be made not more than one month following the payment of the last monthly instalment of $8,750 under clause 7.1.1."

4. The second document signed by the parties on the same date was a form entitled "Agreement to Purchase a Business" signed by De Silva on behalf of Nebula Star Pty Ltd and Jonathan Ockwell on behalf of ATMI Pty Ltd (Exhibit 11A).  This document stipulated that the gross purchase price was "$470,000 subject to conditions stated in attached Agreement".  The reference to the purchase price being $470,000 was obviously a reference to the amount of $250,000 payable on settlement and the further amount of $220,000 which would become payable under clause 7 of Exhibit 11B upon fulfilment of the contingent conditions contained in that clause.  The other point of significance in this agreement is to be found in Clause 19.5 which stipulated that all representations made by the vendor in respect to past turnover, expenses, profits, losses or other financial information are accurate to the best of the vendor's information and belief.

5. The first point that must be made is that the three first defendants were parties to the agreement, Exhibit 11B.  Jonathan Ockwell undertook to incorporate Newco (ATMI Pty Ltd) and, before the sale of the business from Nebula to ATMI took place, to satisfy himself personally as to the matters set out in clause 5 of that agreement.  The position of the first defendants as parties to Exhibit 11B, which contains in clause 7 the contingent conditions relating to the obtaining of a further lease of the business premises, becomes, in my view, an extremely significant factor.  I say this for the following reasons.  The agreement, Exhibit 11B, clearly contained a contingent condition the fulfilment of which was necessary to bring the contractual obligations outlined in clause 7 of that agreement into being.  Such a condition is described in Cheshire and Fifoot's Law of Contract (7^th Australian ed) at p 725 (par 20.1) in the following terms:

   "Any stipulation, in whatever form, which has the effect of making the obligation to perform the contract conditional on the occurrence or non‑occurrence of a non‑promised event must be regarded as a contingent condition of performance.  A contingent condition of performance may also be implied.

   The occurrence of the specified contingency may be a condition of a particular obligation in a contract, or of all obligation to perform it.  In the first case, non‑fulfilment of a condition excuses performance of the particular obligation, so that its non‑performance is not a breach of contract, but it does not bring about termination of the whole contract.  In the second case, non‑fulfilment either results in the automatic termination of the contract or confers a right to terminate it on the parties or one of them."

   This contract clearly fell into the first of those categories.  The non‑fulfilment of clause 7 of Exhibit 11A would have excused ATMI Pty Ltd and the first defendants of the particular obligations arising from that clause.

6. Given the inclusion of the contingent condition in the Agreement, Exhibit 11B, it was incumbent on the parties to that agreement to do what was reasonably necessary to achieve its fulfilment.  This duty is expressed in Cheshire and Fifoot (supra) at p 726 (20.1) as follows:

   "Moreover, although non‑fulfilment of a contingent condition is not in itself a breach of contract, the inclusion of such a condition generally imports an obligation to cooperate towards, or at least not to obstruct, its fulfilment and its non‑fulfilment may therefore entail breach of contract on that basis."

   At p 732(20.7) the learned authors say:

   "A duty to cooperate is implied in every contract.  It follows that if performance is conditional on a contingency which is to any degree within the control of a party, that party must cooperate reasonably in bringing it about.  Failure to cooperate disqualifies the defaulter from reliance on non‑fulfilment of the condition, or, as it is sometimes put, the condition is in such a case treated as satisfied.  Such a failure may also be a breach of contract compensable as damages.

   At its lowest the requirement of cooperation implies a negative duty not to act so as to prevent fulfilment of the condition."

7. There was clearly a duty on the second defendant to make a reasonable endeavour to comply with clause 7 of Exhibit 11B.  I say this because, while ATMI Pty Ltd was not a party to the contract, Exhibit 11B, it was a party to the accompanying agreement (Exhibit 11A) which expressly incorporates Exhibit 11B as part of its terms.  The duty to cooperate or use best endeavours was explained by the High Court in Perri & Anor v Coolangatta Investments Pty Ltd (1982) 149 CLR 537. A contract for the sale of land was made conditional upon the sale by the purchaser of another property. The vendors gave the purchaser notice to complete the contract by a particular date and, when that was not done, purported to rescind the agreement. The purchaser subsequently sold the property and claimed specific performance of the contract. Wilson J said at p 559:

   "There can be no such firm expectation in a conditional contract.  Neither party can be sure of the contract proceeding to completion, for it does not lie in the will of either party to ensure the fulfilment of the condition.  This case is an instance of a conditional contract where there is to be implied a collateral promise by the appellants to make reasonable endeavour to sell the Lilli Pilli property.  A breach of that implied term may entitle the respondent to an action for damages.  Nevertheless, compliance with the term cannot guarantee that a buyer at a satisfactory price will be found.  The completion of the contract is dependent, in the absence of a waiver, on the prior fulfilment of a condition as to which it does not lie fully within the capacity of the appellants to effect.  The agreement between the parties is subject to the prior sale of the Lilli Pilli property.  If on the expiration of a reasonable time that property has not been sold, then either party may initiate the steps which are necessary to the termination of the agreement: cf. Suttor v Gundowda Pty Ltd (195) 81 CLR 418 at p 441. There being no default, the deposit will be refunded."

8. This issue was also dealt with by the Court of Appeal in Paltara Pty Ltd & Anor v Dempster & Ors (1991) 6 WAR 85 where Malcolm CJ said at p 89:

   "Whether a party has 'used his best endeavours' to achieve a stated objective, must be determined objectively in the light of what in fact is required to be done, in the circumstances as they exist, to achieve the stated objective.  In such a case:

   '…he is required to do all that he reasonably can in the circumstances to achieve the contractual object, but no more.'"

   As parties to Exhibit 11B the first defendants were personally bound by clause 7 of that agreement.  The second defendant was also bound by that clause because it was a party to the agreement, Exhibit 11A, which incorporated the provisions of Exhibit 11B.  This must mean that both the first and second defendants were contractually obliged to use their best endeavours to fulfil the contingent conditions.  I cannot see how they can be said to have done that.  While I accept that the second defendant strictly complied with its obligation under the agreement and submitted a tender to the City of Fremantle for a lease of the premises for an 8 year period I do not believe it went far enough.  The company must be deemed to have known that its directors intended making a competing tender and, by permitting the South Terrace tender to be made, cannot be said to have done what was reasonably required of it to obtain the lease itself.  The same reasoning applies, perhaps with even more force, to the actions of the first defendants.  As parties to the agreement, Exhibit 11B, they were under a similar obligation to the second defendant.  Far from doing whatever may have been reasonably necessary on their part to enable the second defendant to secure a lease for an 8 year term they were parties to the rival South Terrace bid which was ultimately successful.  By making that bid on behalf of South Terrace Nominees Pty Ltd they must have been in breach of their contractual obligations to the plaintiff.  The plaintiff should be entitled, so far as an award of damages can do it, to be placed in the same situation as if the contingent provision in the contract had been performed.  Wenham & Anor v Ella (1972) 127 CLR 454 at 471.

9. The first and second defendants cannot be heard to say that they only became parties to the rival bid because they suspected De Silva or his business partner, Treloar, had made an offer to lease the premises themselves.  I do not believe such a consideration is relevant.  Jonathan Ockwell conceded in cross‑examination that he had been told by a representative of Fremantle City Council that De Silva was not held in favour as a tenant by the City of Fremantle.  Whether that information was true or not is irrelevant.  What is significant is that Ockwell must have known or at least believed that De Silva's prospects of making a successful bid, if indeed he did make one, were slim.  As I have already said I do not believe these considerations are relevant.  Given their contractual obligations under Exhibit 11B the first defendants were obliged to use their best endeavours to obtain a further lease for ATMI Pty Ltd.  Even if they had grounds for suspecting that De Silva or his business partner might make a rival bid that did not excuse them from their contractual obligations.  It certainly did not justify the first defendants making a second and more attractive offer on behalf of South Terrace Nominees Pty Ltd.  By doing that they effectively negated the ATMI offer.  What they did was materially inconsistent with their contractual obligation to use their best endeavours to ensure the ATMI offer was successful.

10. I am left in no doubt that the offer made on behalf of South Terrace Nominees Pty Ltd was more attractive than the ATMI offer.  Evidence from representatives of the City of Fremantle revealed that a number of factors were taken into account in awarding a lease: the term of the proposed lease, the quality or character of the proposed lessor and the rental to be paid were all considerations relevant to the exercise of the City of Fremantle's discretion.  In this instance I believe the more probable inference is that the City of Fremantle accepted the South Terrace bid because the proposed rental was higher than that in the ATMI bid.  I have reached this conclusion for the following reasons.  An examination of Exhibit 27 reveals that the offer to lease made by De Silva and Treloar was rejected because the proposed annual rental was considered too low.  That left the two offers by ATMI Pty Ltd and South Terrace Nominees Pty Ltd.  Since both tendering companies had common directors the quality or character of the lessors could not have been a decisive factor.  What Exhibit 27 shows is that the rental offered by ATMI was less than the rental offered by South Terrace Nominees Pty Ltd.  The ATMI proposal equated to a rental of $447 per square metre per annum while the South Terrace bid was the equivalent of a rental of $482 per square meter per annum.  Given the various considerations I have already referred to it seems more likely that the ATMI offer was rejected in favour of the South Terrace offer because of the more attractive rental South Terrace Nominees Pty Ltd was prepared to pay.  By their conduct the first defendants, in submitting the South Terrace offer to lease on these terms, negated or diminished the prospects of the ATMI offer being accepted by the City of Fremantle.

11. Even if the South Terrace bid was not more attractive than the ATMI offer I am still firmly of the view that the first defendants were in breach of their contractual obligations by submitting a competing tender, whatever its terms, because, by submitting a rival bid on competing, if not necessarily more attractive terms, the prospect of the ATMI offer being accepted was still potentially diminished.  This potential reduction in the prospects of the ATMI offer being accepted must place the first defendants' conduct in conflict with their best endeavours to ensure the success of the ATMI offer.  I find that the plaintiff has proved the breach by the first defendants and the second defendant pleaded in par 19‑21 of the further re‑amended substituted statement of claim.

12. Given this finding the plaintiff is now entitled to an award of damages so as to place it in the same situation as if the contingent condition had been performed.  Wenham & Anor v Ella (supra)  Specific performance is no longer an option.  A monetary award to compensate the plaintiff for the defendants' breach must reflect the value of the expectancy which the promise created in the promisee.  Cheshire & Fifoot's Law of Contract (supra) at 23.10.  That value is the amount of $220,000 which the plaintiff expected to receive from the second defendant upon the fulfilment of clause 7 of the contract.  I would award the plaintiff the amount of $220,000 for the breach.

Repudiation of contract

1. In its pleading the plaintiff alleged that the first defendants and/or the second defendant repudiated the agreement.  This allegation arises out of the events that occurred at the meeting on 3 July 1996.  I have already made findings as to what occurred at that meeting.  I accept Jonathan Ockwell told De Silva at the meeting that, because of its financial situation, ATMI could not at that time make the instalment payments contemplated by clause 7 of the agreement upon renewal of the lease.  The letter dated 7 August 1996 from Jonathan Ockwell to ATMI confirming the outcome of the meeting does not carry the matter much further.  In that letter (Exhibit 13) Jonathan Ockwell stated:

   "As stated at the meeting the company does not have the funds available to either service the $8,000 per month payment plan set out in the initial purchase agreement or meet that liquor licence expenditure."

   The letter went on to repeat the proposal made at the meeting that Nebula Star make an interest free loan of $50,000 to ATMI to enable it to fulfil the conditions in the agreement.  The letter concludes with a request that the plaintiff respond to the proposal by 15 August 1996.

2. I have already said I accept Ockwell's evidence that he did not receive any reply from the plaintiff to this letter.  On the evidence I have accepted I am unable to conclude that either the first defendants or the second defendant demonstrated an intention no longer to be bound by the agreement.  I am not satisfied on the evidence that the first defendants/second defendant committed an anticipatory breach of the contract by manifesting an inability or unwillingness to perform before any performance was due.  Foran & Anor v Wight & Anor (1989) 168 CLR 385 at 441. The evidence, in fact, demonstrates the contrary. Although the plaintiff did not loan ATMI the $50,000 referred to at the meeting the second defendant nevertheless made an offer to lease the premises in accordance with its obligations under the contract. This leads me to conclude that Ockwell was correct in asserting he made it clear to De Silva at the meeting on 3 July 1996 that ATMI's inability to pay the conditional purchase price instalments was limited to the point in time when the meeting was held. I am unable to find anything in the conduct of the first defendants/second defendant that could constitute a repudiation of the agreement.

Claims in equity

1. In its statement of claim the plaintiff relied upon several alternative causes of action based in equity.  I do not propose to deal with these alternative claims because, in my view, they were not substantiated by the evidence.  I should add that counsel for the plaintiff, while not abandoning these claims, did not press for their acceptance.  The claim for relief against unconscientious conduct must, in my view, fail because the contracting parties were equally well placed in the bargaining process and there was simply no evidence of any special vulnerability or disability on the part of the plaintiff to justify the availability of equitable relief.  Stern v McArthur (1988) 165 CLR 489 at 526‑7; Blomley v Ryan (1956) 99 CLR 362 at 414.

2. The plaintiff's claim based on a breach of a fiduciary duty was abandoned.

Claim for value of stock and docket books

1. I am not prepared to allow the plaintiff's claim in relation to these issues.  I accept the evidence of Jonathan Ockwell that whatever the second defendant might have owed the plaintiff for the value of the stock was offset by expenses incurred by the second defendant in respect of which it had a legitimate claim against the plaintiff.  I also accept Jonathan Ockwell's evidence that the value of the docket books was included in the plaintiff's stock take figure and that no separate claim can be made to recover the value of those books. 

1. The plaintiff's claim in respect of these items is dismissed.

Evidence of valuation

1. The plaintiff called expert evidence as to the value of the business in the years 1992/93, 1993/94 and in 1995.  James Thompson, the business valuer who prepared the assessments, explained how for the years 1992/93 and 1993/94 he had relied upon the figures reflected in the balance sheets and profit and loss statements of Nebula Star Pty Ltd.  In assessing the value of the business in 1995 he had relied upon the annual taxation return of the company.  His method of assessment involved adjusting the figures reflected in the accounting records of the company and, in the case of 1995, the annual taxation return, by adding back or subtracting, as the case may be, various non‑recurring costs and expenses to arrive at what he described as the adjusted net operating profit to be used for valuation purposes.  I do not need to explain his method in any detail because it is adequately described in the three reports he prepared that were admitted into evidence.  Having followed this procedure he then applied a formula known in his profession as the "return on investment" method to arrive at a valuation of the business in each of the years previously referred to.  Once again I need not go into detail as to how this formula is applied because this is dealt with in detail in his reports.  Using this formula he concluded that on the 1993/1994 business figures the value of the business in June 1995 would have been $491,000.  Using the 1994/1995 figures, which as I said earlier were extracted from the plaintiff company's annual taxation returns and not from its books of account, a value of $266,011 was arrived at.  It will be seen that the witness adjusted the 1995 figures by adding back the sum of $35,000 to reflect the proprietors anticipated drawings from the business.  He also confirmed that his examination of the earlier accounting records of the company for the years 1992/93 and 1993/94 revealed that cash withdrawals had been taken into account in arriving at the profit margins.  If, however, cash withdrawals were excluded he believed the value of the business in 1995 would have been approximately $168,000.

2. In cross‑examination Thompson's valuation was challenged on several grounds: first, that undeclared cash and the wages of the proprietors of the business should not have been added back in the form of an adjustment; second, that the expert relied upon unreliable material in reaching his conclusions and, instead of basing his calculations on the balance sheets and profit and loss statements, he should have relied on the plaintiff's taxation returns for the relevant periods.  The witness agreed a formal evaluation would necessarily exclude undisclosed cash takings unless the parties to the valuation agreed otherwise.  The addition of undeclared cash takings did, as Thompson conceded, carry a high risk.  His explanation for adding back the proprietor's wages, however, falls into a different category.  The witness said this was a regular practice adopted by most valuers in assessing the value of small businesses.

3. It is significant that, using the profit figures for 1993/1994 relied on by the defendants' own experts, but adding back $35,000 for what Thomson described as unusual repairs and maintenance during that period and a further amount of $35,000 to reflect the proprietor's wages, the witness, using the same method of calculation as he had earlier, assessed the value of the business at the time of sale as being either $176,149 or $276,183 depending on whether the lower or higher profit figure relied upon by the defendants' experts was used.  These figures, it will be seen, correspond with the results arrived at by the defendants' valuer, Owen Mitchell.

4. Grant Priest, a chartered accountant, was called by the defendant to give evidence as to the profitability of the business.  The accountant based his conclusions on the profit and loss statements and balance sheets comprising Exhibits 16A and 16B, the annual returns for 1993, 1994 and 1995 (Exhibits 20, 21 and 22) and the Nebula Star 1994 taxation return (Exhibit 18).  In assessing the true worth of the business and its profitability, however, the witness concentrated entirely on the material contained in the company's annual returns and taxation return for 1994.  No reliance was placed on the figures in the profit and loss statements and balance sheets apart from the figure reflecting an operating loss of $27,245 for the year ending 1993 as shown in the profit and loss statement (Exhibit 16B).  No weight was attached to the remaining balance sheets and profit and loss statements for the years ending 1993 and 1994 because, according to the witness, they did not fall into the category of "compliance documents".  Conducting his analysis in this manner the accountant concluded that the weekly turnover of the business at the time of sale in about July 1995 was between $6,158 - $9,335 as opposed to the average weekly turnover of $13,677 reflected by the figures in Exhibits 16A and 16B.

5. The contrast in the figures relating to profit and loss was even more startling.  In his analysis the witness concluded that the average annual profit of the business in the years 1993, 1994 and 1995 as reflected by the figures in Exhibits 16A and 16B was $140,700.  According to the annual returns and the 1994 taxation return, however, the plaintiff had an average loss of $38,480 during this period.  If the figures he relied on were correct the accountant concluded that at the time of sale the business had no goodwill value at all.  Its only value lay in the plant and equipment it owned which had been valued at $139,903 in the purchase settlement statement dated 28 July 1995.

6. Owen Mitchell, a licensed business and sales agent, was requested by the defendants to assess the market value of the business at the date of sale.  In his assessment he had access to the 1994 taxation return of Nebula Star and the balance sheets and profit and loss statements for the years 1992, 1993 and 1994.  In arriving at his conclusions he relied on the taxation figures for the gross turnover of the business because he considered these more reliable than the figures referred to in Exhibits 16A and 16B.  In making the necessary adjustments or addbacks, however, he relied on the figures prepared by the accountants in Exhibits 16A and 16B.  In his report, which was tendered in evidence, he set out his method of valuation and I do not need to repeat what is set out in his report.  His method of assessment, and the figures upon which he chose to base his conclusions, were not seriously challenged by counsel for the plaintiff.  It was only in the area of adjustments or addbacks that issue was taken.

7. Having calculated the total adjusted net profits of the business from the 1994 figures the witness arrived at a range of between $24,240 - $77,758 depending on whether the figures reflecting the gross profit margin were calculated using a percentage figure of 63 per cent or 73 per cent.  Using both these percentages to calculate gross profit margins he concluded that the market value of the business ranged between $45,308 and $145,342 depending on whether the lower or higher percentage mark was used.  In cross-examination, however, he agreed that an adjustment of $35,000, reflecting unusual repairs and maintenance during the period 1993-1994, should be made to his own figures.  A similar adjustment had been made by James Thompson, the business valuer who gave evidence on behalf of the plaintiff.  If this amount of $35,000 was added back the adjusted net profit figures would increase to a range of $59,240 - $112,758.  With a total adjusted net profit in this range the witness said the market value of the business in 1994 would lie between $110,728 calculated on the 63 per cent figure or $210,762 on the 73 per cent mark.

8. The witness was reluctant to make an additional adjustment of $35,000 to reflect the drawings of the owners of the business.  Although this allowance or addback had been made by James Thompson, the valuer called by the plaintiff, the witness said he believed that such an adjustment, when added to the wages already allowed for by the accountants in Exhibits 16A and 16B, would result in an unrealistic result compared with the benchmark figures relating to restaurants which he had access to.  If, however, such an addback were made it would increase the adjusted net profit range to a bottom figure of $94,240 and an upper figure of $147,758.  Working on these figures the market value of the business would, in the opinion of the witness, range from $176,149 at 63 per cent and $276,183 at 73 per cent.

9. There is little difference in the methodology adopted by the valuers called by the plaintiff and the first defendant.  The major difference in their respective approaches lies in the gross sales figures relied upon.  I am satisfied it was more appropriate to rely upon the figures reflected in the plaintiff's annual taxation return than the balance sheets and profit and loss statements (Exhibits 16A and 16B).  Having come to this conclusion the only remaining question is what legitimate adjustments should be made.  I accept that a $35,000 adjustment must be made to reflect the maintenance and repair work carried out by the plaintiff in 1993‑1994.  Owen Mitchell, the expert called by the first defendants, conceded this point.  It is more questionable, however, whether an adjustment for the owner's wages or drawings ought to be made.  James Thompson, the valuer called by the plaintiff, explained why it was necessary to make such an adjustment.  Owen Mitchell, the valuer who gave evidence on behalf of the first defendants, conceded that in principle such an adjustment could be made but queried whether it was appropriate in this case because of the allowance already made for wages.  While expressing some misgivings about the appropriateness of making such an allowance, however, he did not categorically exclude it.

10. The only remaining question is whether the 63 per cent or 73 per cent mark is the more appropriate in calculating the gross profit margin of the business.  I accept Owen Mitchell's evidence on this point because, as he said, the 63 per cent mark more accurately reflects the bench mark figure relating to restaurants generally.

11. In the light of these findings I must conclude that the market value of the business at the time of sale was in the region of $176,149.  This figure represents a substantial shortfall on the price paid for the business.  Whether, in the end, it has any relevance will depend on my finding on the appropriate measure of damages.

Measure of damages

1. The first defendants by their counterclaim have sought damages for losses they incurred in procuring the second defendant to pay an excessive amount for the business and for the funding they provided to the second defendant for the purchase of the business.  The claim is based on either s 52 of the Trade Practices Act or s 10 of the Fair Trading Act.  Under s 52 of the Trade Practices Act a person or corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.  In order to succeed the first defendants must prove that any loss or damage they suffered was caused by conduct in breach of s 52.  Wardley Australia Ltd & Anor v The State of Western Australia (1992) 175 CLR 514 at 525. The authorities also confirm that causation is a factual issue to be decided according to common sense and ordinary experience and one in respect of which policy considerations and value judgments might also be relevant considerations. March v E & MH Stramare Pty Limited & Anor (1991) 171 CLR 506. The oral representations relied on by the first defendants need not be the sole inducement. They must, however, play some part, even if only a minor part, in inducing the representee to enter into the contract. Gould & Anor v Vaggelas& Ors (1985) 157 CLR 215 at 236.

2. The question of whether the first defendants have proved a breach of s 52 of the Trade Practices Act depends entirely on what representations, if any, were made by De Silva to Jonathan Ockwell at their initial meeting in March 1995.  It was at this meeting, according to Jonathan Ockwell, that De Silva made the representations pleaded in par 14 of the defence and counterclaim.  I have referred elsewhere to the details of the alleged representations and there is no need for me to repeat them.  The balance sheets and profit and loss statements (Exhibits 16A and 16B) which the first defendants acknowledge were later given to them by De Silva play no real part in the determination of this issue.  Those documents, according to Jonathan Ockwell, simply reinforced his earlier decision to enter into the agreement in reliance on the oral representations made to him by De Silva at the meeting on 15 March 1995.

3. I have already said I prefer the evidence of Jonathan Ockwell to that of De Silva.  I repeat my earlier finding that De Silva has been proved to have made the oral representations on 15 March 1995.  I also reiterate my belief that Ockwell and his co‑defendants relied on those oral representations in deciding to enter into the contract.  I find that De Silva, at the time he made the oral representations pleaded in par 14 of the defence/counterclaim, did not have reasonable grounds for making those statements.  Edgar & Ors v Farrow Mortgage Services Pty Ltd (in liq) (1992) ATPR (Digest) 46‑096 .

4. The major problem facing the first defendants in their counterclaim is the measure of damages.  In their counterclaim the first defendants have sought damages for the difference between the purchase price and the actual value of the business.  Where the problem lies is that the counterclaim is not brought by the second defendant.  It has been brought by the first defendants in their personal capacities.  But it was the second defendant which paid the purchase price and purchased the business.  Clearly if the second defendant had been induced to enter into the contract by De Silva's misrepresentations it would be entitled to compensation for its economic or financial loss.  Wardley Australia Ltd v Western Australia (1992) (supra).  The problem is that it is the directors of the second defendant, and not the second defendant itself, who are claiming damages for their loss.  The question arises whether they have a legitimate claim against the plaintiff and, if so, whether they are entitled to recover damages as pleaded.

5. An appropriate starting point in considering this question is the decision in Johnson v Gore Wood & Co [2001] 2 WLR 72. In that decision the House of Lords decided that a person was entitled to recover any loss he suffered provided that loss was not a reflection of any loss suffered by a company in which that person was a shareholder. At p 94 Lord Bingham said:

   "These authorities support the following propositions.

   (1)Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss.  No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company.  A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined to failed to make good that loss.  So much is clear from Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, particularly at pp 222‑223. …

   (2)Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding.  This is supported by Lee v Sheard [1956] 1 QB 192, 195‑196, George Fischer and Gerber."

6. In Gould & Anor v Vaggelas & Ors (supra) the Goulds entered into an agreement on behalf of a company yet to be formed to purchase a tourist resort from Vaggelas.  The price paid comprised a $5,000 cash deposit, $957,000 on settlement achieved by the transfer of real estate by the Goulds to Vaggelas and the balance in instalments secured by a mortgage back to Vaggelas.  After 2 years of trading the venture failed and the company defaulted in the payment of the instalments.  Vaggelas exercised his power of sale as mortgagee and claimed from the Goulds as guarantors the difference between the proceeds of the sale and the balance still owed by the company which had since gone into liquidation.  The Goulds counterclaimed and sought damages from Vaggelas on the ground that Vaggelas had misrepresented the profitability of the business and misstated figures as to occupancy rates and financial returns.  The trial judge dismissed the claim by Vaggelas and, upholding the Goulds' counterclaim, awarded them damages for deceit of $1,427,500.

7. In considering the award and the appropriate measure of damages the High Court emphasised the distinction between the causes of action open to the Goulds on the one hand and the company on the other.  Gibbs CJ said at p 219‑220:

   "The second question, whether the Goulds have established that they suffered damage because they acted in reliance on the false statements made by Vaggelas and, if so, what is the measure of their damage, is a more difficult one.  The difficulty lies not in stating the legal principles which should be applied, but in applying those principles to the facts of the case.  It is clear that it was not right to identify the Goulds with the company, Gould Holdings Pty Ltd ("Gould Holdings"), which the Goulds formed to make the purchase, notwithstanding that they were the sole shareholders.  It is of course elementary to say, as was said in Prudential Assurance Co Ltd v Newman Industries Ltd [No 2] [1982] Ch 204 at p 210, 'that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C. C is the proper plaintiff because C is the party injured, and, therefore, the person in whom the cause of action is vested'. Any loss suffered by Gould Holdings as a consequence of the fraud can be recovered only by the company itself. Even if the company had not commenced an action within the limitation period, its failure to enforce its own rights would not have enhanced the rights of the Goulds: see Prudential Assurance v Newman Industries [No 2] [1982] Ch at p 223.  However, although the Goulds cannot recover damages merely because Gould Holdings has suffered damage, and cannot recover damages which are merely a reflection of a loss suffered by the company, they may recover damages for the loss which they personally have suffered and which is separate and distinct from the loss suffered by the company.  That this is so is clear in principle, but if authority is needed, the judgment in Prudential Assurance v Newman Industries [1982] Ch at pp 222‑223 provides it."

   Brennan J said at p 253:

   "The question raised by the appeal is the measure of the Goulds' damages.  They did not purchase the resort.  Can they recover damages except through the company which suffered loss as the purchaser?  The Goulds cannot sue in their own names for the company's loss (Prudential Assurance Co Ltd v Newman Industries Ltd [No 2] [1982] Ch 204 at p 210); they can recover only the loss suffered by them in acting upon the fraudulent misrepresentations which Mr Vaggelas made. They did not act upon those representations by becoming the purchasers of the resort but by forming the company, by providing it with funds to complete the contract to purchase the resort and by guaranteeing the company's borrowings needed to improve the resort and provide working capital. No doubt it was a matter of indifference to the Vaggelas interests whether the Goulds chose to buy the resort personally or by forming a company to be the purchaser, but the terms of the contract show that the formation of the company to complete the purchase and conduct the resort was contemplated by the parties. The representations were calculated to induce the Goulds either themselves to buy or to form a company to do so and, in the latter case, to provide to or procure for the company the funds it would need to complete the purchase of the resort and to conduct the resort. It is the loss, if any, suffered by the Goulds in acting in this way which is recoverable in this action. The Goulds' loss is the loss suffered by a creditor of the company which, apart from its cause of action in deceit, is worthless."

   What the Goulds had lost as a consequence of the vendor's deceit was the real estate worth $733,712, the value of the mortgaged property sold in realisation of the balance of the unpaid purchase price and the amounts that they had to pay to the banks under personal guarantees.  But, since their losses were not incurred by them as purchasers, their measure of damages was held to be the difference between these losses and the debt owed to them by the company for the moneys they had advanced to the company to purchase the resort.  It was only because the company was valueless and unable to meet any part of its liability to the Goulds that they were entitled to look to Vaggelas for recovery of their full losses.

1. Brennan J said at p 255:

   "In the present case, however, the Goulds' loss was not incurred as the loss of a purchaser of property.  In the present case, the Goulds lost the property which they parted with on completion of the contract that was worth $733,712.12, the net value of the mortgaged properties ($266,273) and the amount which they remain liable to pay under the guarantees ($227,983).  What the Goulds received in exchange is the company's unsecured liability to repay the amounts credited as moneys lent to the company ($957,500) and to indemnify them for the moneys paid under the guarantees (there were no valuable securities held by the company's creditors which were available to the Goulds when they discharged their liabilities under the guarantees).  What is the value of the company's liabilities to the Goulds (which I shall call the company debt)?  The company has, or is alleged to have, a cause of action in deceit against the respondents for the amount of its losses but, apart from that cause of action, the liquidator's evidence shows that the company has no assets out of which to satisfy the company debt in whole or in part."

2. In this case the first defendants, like the Goulds, were induced by misrepresentation to enter into a contract for the purchase of the business through a company which they controlled.  Like the Goulds the first defendants financed the purchase of the business.  The business acquired by the second defendant was worth substantially less than what it had been represented to be worth.  The first defendants, like the Goulds, are entitled to damages for losses that flowed directly from the misrepresentations.  This loss, according to the first defendants, is the difference between what the business was worth and what they paid for it.  But what the counterclaim fails to reflect is the distinction between the first defendants' cause of action and the cause of action open to ATMI Pty Ltd.

3. Following the decision in Gould, which I am unable to distinguish, the first defendants cannot purport to stand in the shoes of the purchaser, ATMI Pty Ltd, and recover the same damages ATMI might have recovered.  As Brennan J said at p 257:

   "Once it is recognised that the Goulds' cause of action is distinct from the company's there can be no question of the Goulds appropriating the company's cause of action or of measuring the Goulds' damages by what the company could have recovered at some earlier time.  In assessing the Goulds' loss, the value of the company's cause of action is relevant to the value of the company debt so far as it might show what the company was likely to pay the Goulds; but the value of the company debt is a matter of fact, not to be ascertained by reference to the measure of damages which might have been recovered by the company if it had sued.  The relevant question in determining the Goulds' damages was whether the company would more probably than not be able to pay some or all of what it owed the Goulds."

4. Both the pleadings and evidence are silent as to whether the second defendant is able to pay some or all of what it owes or might owe the first defendants.  Without that evidence it becomes impossible to assess the correct measure of the first defendants' losses.  Unlike the situation in Gould, where the company was in liquidation and unable to meet its liability or any part of it to the Goulds, I am unable to make any finding as to what the value of ATMI's debt, if any, to the first defendants is.  Without making that finding I am unable to assess the true measure of the first defendants' losses which is the difference between the money advanced by them to the second defendant as a consequence of the misrepresentation and the value of any debt owed to them by the second defendant.

5. For this reason the first defendants' counterclaim must fail notwithstanding my finding that they were induced by De Silva's misrepresentation to pay through ATMI substantially more for the business than what it was worth.

Conclusions

1. I find that the first and second defendants were in breach of the contract by failing to use their best endeavours to fulfil the contingent conditions and that the plaintiff is entitled to damages in an amount of $220,000 on account of this breach.

2. I also find that, while De Silva did misrepresent the earnings of the business and induced the first defendants to cause the second defendant to pay too much for the business, the first defendants have not proved any loss for which they are entitled to be compensated in damages.