Nguyen v Nguyen
[2009] SADC 80
•6 August 2009
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
NGUYEN & ANOR v NGUYEN & ANOR
[2009] SADC 80
Judgment of His Honour Judge Burley
6 August 2009
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH
DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT - GENERAL
DAMAGES - GENERAL PRINCIPLES - OTHER MATTERS
Plaintiffs seek recovery of the purchase price of a shop business and damages for non-payment - Defendants agree Plaintiffs entitled to purchase price but counterclaim for misrepresentation or in the alternative damages for breach of contyract or damages pursuant to s15 of Land and Business (Sale and Conveyancing) Act - whether Plaintiffs entitled to damages in addition to purchase price where nil interest provided for within the contract - whether Plaintiffs induced defendants to enter into contract by misrepresentations and if so what damages payable - whether Plaintiffs in breach of contract by failing to pay rent owed prior to settlement - whether Plaintiffs provided a vendor's statement (Form 2) and if so whether defective and whether Defendants prejudiced as a result.
Held: Contract clause stating nil interest payable for default did not exclude all remedies - Plaintiffs could recover damages proportionate to the expense to which they had been put by not being able to retire their debt - insufficient evidence that conduct of the Plaintiffs amounted to misrepresentation - Defendants counterclaim based on misrepresentation failed for want of evidence - in any event insufficient evidence of actual value of business - Plaintiffs were in breach of contract by failing to pay rent - Defendants entitled to damages - vendor's statement defective however Defendants failed to establish any resulting damage - other heads of damage claimed in any event not recoverable - Defendants had affirmed the contract - not recoverable by Defendants.
Land and Business (Sale and Conveyancing) Act 1994 s15; ss5(8); Misrepresentations Act 1972 (SA) s7; District Court Act 1991 s39, referred to.
Veitch v Easson [1949] SASR 9; Byers v Dorotea Pty Ltd (1986) 69 ALR 715; Hungerfords v Walker (1989) 171 CLR 125; Hadley v Baxendale (1854) 9 Ex Ch 1 341; Caswell v Power [1939] 3 All ER 722; TNT Management Pty Ltd v Brooks (1979) 23 ALR 345; Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1; Luxton v Lines (1952) 85 CLR 352, considered.
NGUYEN & ANOR v NGUYEN & ANOR
[2009] SADC 80Judge Burley
Civil
These proceedings consist of a claim by the plaintiffs for the recovery of the purchase price of a shop business ($178,998) together with Hungerfords v Walker damages arising from the non-payment of the purchase price and a counterclaim by the defendants for damages for misrepresentation pursuant to Section 7 of the Misrepresentation Act, alternatively for damages for breach of contract and, in the further alternative, for damages pursuant to s15 of the Land and Business (Sale and Conveyancing) Act 1994.
The defendants admit that the plaintiffs are entitled to judgment on the claim for the purchase price. They deny that the plaintiffs are entitled to the additional damages claimed. They contend that they are entitled to judgment on the counterclaim for the recovery of the following sums of money:
$ (1) The difference between the value of the business and the purchase price. 20,000 (2) The amount paid by the defendants for arrears of rent owed by the plaintiffs. 15,023 (3) Stamp duty paid on the transfer of the business. 5,990 (4) Legal costs relating to the acquisition of the business. 568 (5) Costs of bank guarantee to landlord. 400 (6) Licence fee to the Lotteries Commission. 19,151 Total $61,133
The defendants contend that the plaintiffs’ and the defendants’ respective entitlements to judgment should be offset resulting in a net judgment to the plaintiffs for $117,865. The defendants accept that interest on that sum should be awarded pursuant to s39 of the District Court Act 1991 from 17 May 2006 (when the purchase price should have been paid) until judgment.
The Facts
The following narrative sets out the facts which were not in dispute. I shall also refer to the disputed facts to the extent necessary.
From July 2004 to May 2006, the plaintiffs conducted a delicatessen and Chinese food outlet business at Shop 2, 519 Bridge Road, Para Hills. They also conducted a Lotteries Commission agency (the agency) at that address. The business was called the “Para Hills 5 Star Delicatessen”.
In January 2006, having decided to sell the business, the plaintiffs placed an advertisement in a Vietnamese newspaper offering the business for sale. The defendants responded to the advertisement. A meeting took place at the shop premises on about 20 January 2006. There was a conversation between the plaintiff, Ms Loan Tran (Loan) and her domestic partner, Mr Trung Nguyen (Trung) on the one hand and the defendants, Mr Van Danh Nguyen (Van) and his daughter, Jan-Marie Nguyen (Jan-Marie) on the other hand. All but Van spoke fluent English and Vietnamese. Van spoke fluent Vietnamese and broken English. Trung was not a proprietor of the business but he nevertheless spoke on behalf of the plaintiffs. All gave evidence at the trial.
The conversation on 20 January 2006 was mainly between Trung and Van in the Vietnamese language. During the course of the conversation, Trung referred to the gross weekly takings of the delicatessen and food outlet ($13,000.00) and to the monthly earnings from the agency. There is a minor but inconsequential difference between the witnesses as to how the agency’s earnings were referred to. Trung said that he showed the defendants monthly statements from the Lotteries Commission which set out monthly commissions payable. The defendants said that, in addition, Trung stated that the monthly earnings from the agency were $12,000.00 to $14,000.00. It is sufficient for me to find that at the meeting, Trung, on behalf of the plaintiffs, made known to the defendants that the monthly earnings from the agency were in the range of $12,000.00 to $14,000.00.
The defendants have not contested the literal accuracy of both representations. Their case in misrepresentation is based on the contention that the Keno earnings from the agency were grossly inflated by what was referred to as “operator gaming”. Specifically the defendants contended that I should infer that at least half of the commissions in respect of the Keno game arose from gambling by the plaintiff Thi Nguyen (Thi) and Trung or either of them. The defendants contend that that fact should have been disclosed to them when the representation as to earnings from the agency was made because that source of commission would not, to the knowledge of the plaintiffs, have continued after settlement. It is common ground that no such disclosure was made. On the contrary, Thi and Trung said that they only gambled occasionally and for small amounts. The defendants argued that the failure to mention heavy gambling by the operators constituted a misrepresentation by silence. That is the only alleged misrepresentation relied upon by the defendants.
In January 2006 the parties agreed a price for the business at $158,000 plus stock at valuation. A written contract (Exhibit P1-tab 11) was prepared and signed on 25 February 2006. Eventually a settlement date of 17 May 2006 was set. Between the contract and settlement the defendants were to apply for a licence from the Lotteries Commission to enable them to conduct an agency at the premises.
The Sale and Purchase Contract was subject to the Lotteries Commission granting a licence to the defendants (Clause 2.2).
Until settlement, the plaintiffs were obliged “to carry on the … business in an efficient and business-like manner …” (Clause 8.2).
The Lotteries Commission subsequently granted a licence to the defendants. A stock valuation was arranged for the evening of 16 May 2006. The valuation took place on that day and was completed at about 11pm or 12 midnight. The keys to the premises were handed over to the defendants at the conclusion of the valuation on the basis that they would commence operating the business early the next morning.
The purchase price was not paid on 17 May 2006, nor has it been paid since that date despite requests for payment: see for example Exhibit P1-tab 29).
Almost immediately upon taking over the business, Van became dissatisfied with its performance. He asked Trung to renegotiate the purchase price. He suggested a reduction to $70,000 plus stock. Depending upon whose version of the facts is considered, Trung either refused to renegotiate the purchase price or did not respond to Van’s request.
Van said that he withheld the purchase price because his solicitor told him (after settlement) not to pay until a Form 2 was provided by the plaintiffs. That form provides detailed information of the business to a prospective purchaser. There is a statutory obligation upon a vendor to provide the Form 2 and, if it is not provided, rights to “cool off” in relation to the contract persist until settlement (s.5(8) Land and Business (Sale and Conveyancing) Act 1994 (the Act)) and after settlement various rights are provided for, including the right to claim damages: see s15 of the Act.
The plaintiffs say they provided a Form 2 in early May (Exhibit P1-tab11). A copy of this document was included in the book of documents behind a copy of the Sale and Purchase Contract previously referred to. It was not suggested that the Form 2 was provided to the defendants at the time the contract was executed.
The defendants denied that they were ever served with a Form 2 but in any event questioned the sufficiency of the document. Be that as it may, the defendants continued to operate the business until they sold it in November 2006, with settlement at the end of December 2006. They thereby unequivocally affirmed the contract by which they purchased the business.[1] The defendants have confirmed their affirmation by accepting that the plaintiffs are entitled to the purchase price. This affects the rights of the defendants to seek redress for alleged misrepresentation. Most of the damages claimed would be recoverable (all things being equal) if the defendants had sought rescission of the contract. But instead, they affirmed the contract and their damages (if any) are confined to those heads of damage applicable to the case where there has been an affirmation of a contract induced by fraudulent misrepresentation.
[1] Veitch v Easson [1949] SASR 9; Byers v Dorotea Pty Ltd (1986) 69 ALR 715
The counterclaim and the damages sought
Even if it is accepted that the plaintiffs misrepresented the earnings from the operation of the agency, all of the heads of damage in the counterclaim referred to at the commencement of these reasons are misconceived except (1).
First, the amount claimed for the arrears of rent (item (2)) is not a reflection of damages for misrepresentation. The basis of such a claim arises if the plaintiffs failed contractually to do what was required to transfer the benefit of their lease of the premises to the defendants. It is abundantly clear that the plaintiffs did fail in that obligation because, at the time of settlement, $15,023 was owed by them in rent. The plaintiffs contravened clause 8.2 of the contract as alleged in the defendants first alternative counterclaim. It is not a real alternative, at least insofar as it relates to the recovery of the $15,023. It is better characterised as the contractual cause of action entitling the defendants to recover damages commensurate with the arrears of rent because the plaintiffs, in allowing arrears of rent to accumulate and to be payable as at the settlement date, were in breach of their obligations to ensure that the defendants obtained a clear title (by way of leasehold) to the defendants. The defendants paid the arrears to secure their tenure. They are, accordingly, able to recover contractual damages amounting to $15,023.
The plaintiffs admitted at trial that the defendants had paid this sum but contended that the defendants’ payment to the landlord should be characterised as a part-payment of the purchase price. I reject this submission. If, as was contended by the plaintiffs, the plaintiffs informed the defendants that they would pay the arrears of rent once the purchase price had been paid by the defendants, it is clear that the defendants’ payment of the arrears was not made at the direction of the plaintiffs to apply part of the purchase price to payment of arrears of rent. It could not, therefore, be characterised as a part payment of the purchase price.
There is another aspect of the first alternative counterclaim: the defendants say that the profitability of the agency was diminished by the plaintiffs’ alleged failure to conduct that aspect of the business efficiently contrary to clause 8.2 of the contract. The applicability of the clause depends on whether or not the “business” referred to in the clause included the agency. The structure of the Contract clearly reveals that the plaintiffs did not purport to sell the agency to the defendants. This was accepted by the defendants. That acceptance precludes the application of clause 8.2 of the Contract to the manner in which the plaintiffs conducted the agency up to the time of settlement. I refrain from speculating as to whether or not another cause of action was available to the defendants on the point. If it did exist, it was not relied upon. For these reasons, the defendants’ counterclaim based on clause 8.2 and the alleged diminution in the profitability of the agency fails.
The counterclaim to recover stamp duty (item (3)) is incorrect to the extent that all of the stamp duty paid is claimed. The limit of this claim is the difference between the stamp duty paid and the stamp duty which would have been paid on a business of a lesser value. If the calculation of the latter amount of stamp duty is a matter of evidence, no evidence was adduced. If it is a matter of calculation by reference to statutory provisions, none was referred to.
The full amount of the stamp duty is not recoverable because the defendants operated the business for about seven months after they acquired it. They then sold it to someone else. By this means, as previously stated, they affirmed the contract for the purchase by them of the business notwithstanding the alleged misrepresentation. It follows that costs incurred by them such as stamp duty (on the actual value), legal fees and the cost of a bank guarantee were costs incurred in any event, in relation to their acquisition of the business. Those payments do not reflect a loss arising from the alleged misrepresentation because of the affirmation of the contract. The fact that the defendants, as was contended by their counsel, may not have proceeded with the purchase of the business had they known before settlement that they (allegedly) had been mislead, is not to the point. Such a submission may be material to a case where rescission of the contract is pursued, but not where the contract has been affirmed by the subsequent sale of the business.
The same reasoning applies to the payment of the licence fee to the Lotteries Commission. The evidence is, and I find, that such a fee is payable by all applicants for licences to conduct agencies. Once the agency is conducted by the licensee, the licence fee is non-refundable. It is the price paid by the applicant for the licence to obtain, not the seller’s licence but a new licence.
It was common ground at the trial that the plaintiffs conducted a Lotteries Agency at the shop premises and I accept the defendants’ case that the existence of the agency was of primary importance to them in deciding to acquire the shop business. But, as stated earlier, I have formed the view that the agency did not form part of the business sold by the plaintiffs. The contract was subject to the defendants obtaining a licence to conduct an agency at the premises. It was common ground that the agency was not the plaintiffs’ to sell. All that the plaintiffs could do was to point to the existence of the agency run by them at the shop premises leased by them and to direct the intending purchaser to the Lotteries Commission to which an application for a new licence could be made. Their intention to sell the business at which the agency was conducted required the plaintiffs, on sale, to relinquish their occupation of the premises and therefore their licence. They thereby gave an intending purchaser an opportunity to apply for a replacement licence to conduct the agency at the subject premises.
In those circumstances, the decision of the defendants to continue to run the agency and to sell the business at a time when the agency was still being conducted at the premises, has the same effect that the affirmation of the contract has on the type of damages which may be recovered if a case in misrepresentation is made out. If the defendants had sought rescission of the contract, they could arguably have recovered the equivalent of the licence fee because the business premises, as part of the rescission, would be returned to the plaintiffs. However, in operating the agency and subsequently selling the business with the new agency still intact, the defendants have taken up and retained the benefit of the new licence such that they cannot now say that they should be able to recover the licence fee. Put shortly, the alleged misrepresentation does not give rise to recovery of the licence fee where the defendants have continued to run the agency.
As a result of the above analysis, three matters remain to be decided: first, whether the plaintiffs have established a case for the recovery of damages in addition to the purchase price; second, whether the defendants have established that they were induced to enter into the contract for the sale and purchase of the business by the misrepresentations allegedly made by the plaintiffs, and, if so, what damages are payable; and third, depending upon what conclusions I reach with regard to the misrepresentation claim, whether the defendants’ counterclaim based on s15 of the Act is sustainable.
The additional damages claimed by the plaintiffs
The plaintiff seeks to recover compound interest and rely on such cases as Hungerfords v Walker (1989) CLR 125.
The first point to be made is that the plaintiffs do not seek interest on the unpaid purchase price pursuant to the terms of the contract. The contract is Exhibit P1–11. Clause 22 provides for interest to be paid on the unpaid purchase price. The rate of interest was required to be specified in the schedule. The word “nil” was inserted in the relevant part of the schedule. No explanation was given for this in the evidence. Nevertheless, it is clear that a default interest could not be recovered pursuant to Clause 22 of the contract because the default interest rate was specified as “nil”. Equally, it could not be contended that Clause 22 was the only means by which interest could be recovered by the plaintiffs from the defendants should the defendants default in payment of the purchase price or any part thereof. Clause 22 provides that interest is recoverable “without prejudice to any other right, power or remedy of the vendor by reason of such default”.
Before turning to the detail of the parties’ respective arguments, it is clear from the plaintiffs written submission filed by leave after the conclusion of the trial, that, for the purposes of calculating interest, the plaintiffs recognise that, from the purchase price of $178,998.00, there is to be deducted the sum of $15,023.00 being the arrears of rent payable by the plaintiffs to the landlord as at the date of settlement. As stated above, I consider that that sum is recoverable by way of counterclaim by the defendants from the plaintiffs. It follows that if damages by way of compound interest are to be awarded as sought by the plaintiffs, the capital sum in respect of which interest is calculated is the sum of $163,975.00.
The plaintiffs say that, had the purchase price been paid at settlement, they would have retired debt (the amount of which was proved to have been more than the purchase price), owed by them a collectively and individually to various lending institutions. (When I use the expression ‘purchase price’ I mean the sum of $163,975.00 previously referred to.)
It is not disputed by the defendants that the plaintiffs are entitled to recover interest on the purchase price from the date of settlement (17 May 2006) until judgment in accordance with the provisions of s39 of the District Court Act 1991. It follows that, if I am against the plaintiffs on their claim for what they refer to as compound interest, I should at least award interest calculated in accordance to s39.
The plaintiffs claim starts with the proposition that the claim for compound interest is a form of contractual damages. As such, what was said by the Court of Exchequer in Hadley v Baxendale (1854) 9 Ex Ch 1 341 is applicable. In that case Alderson B said (at 354):
Now we think the proper rule in such a case at present is this: where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things for such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of the parties, at the time they made the contract, as a probably result of breach of it.
The High Court in Hungerfords v Walker (supra) considered whether compound interest should be allowed. In that case, as a result of an error made by the defendants, who were accountants, the plaintiffs overpaid tax over a number of years. The plaintiffs were unsuccessful in recovering the claimed interest at trial, but on appeal to the Full Court, it was held by that court that the damage resulting from the loss of the use of the money which had been overpaid to the taxation office was within the reasonable contemplation of the parties (the accountants and the clients) and should be included in the award of damages. The High Court agreed with the Full Court. The majority (Mason CJ, Wilson, Brennan and Dean JJ) held that expenses arising as a result of money being wrongfully withheld are pecuniary damages suffered by the plaintiffs as a result of the defendants conduct and, as such, constitute an element of loss which the plaintiffs were entitled to be compensated for by an award of damages. In my opinion, unless there is something within the submissions of the defendants requiring a contrary conclusion, what was said by the High Court in Hungerfords v Walker (supra) is applicable to the plaintiffs claim for damages.
It was not in dispute that the loans which would have been repaid attracted interest which was compounded from month to month by the lending institution. The plaintiffs said that their loss is the interest that they have had to pay from the 17 May 2006 to date, as a result of not being able to retire debt to the extent of the purchase price. In those circumstances, the question arises as to whether or not it was within the reasonable contemplation of the parties that the plaintiffs would experience such a loss if the purchase price was not paid. In my opinion this has been established. Both of the defendants agreed that where a small business was purchased, normally the purchaser would borrow funds to pay the purchase price. That occurred when the plaintiffs purchased the business. Those borrowings constitute the debt which would have been repaid to the extent of the purchase price. Accordingly, it was clearly within the contemplation of the parties that if, as occurred in this case, the purchase price was not paid on settlement (or at all) the plaintiffs would be required to maintain the loans obtained by them when they acquired the business. The uncontested evidence is that those loans obtained by the plaintiffs exceeded the amount of the purchase price and after settlement continued to exceed the purchase price until the date of trial. There was evidence that there had been some adjustment of the loans between the plaintiffs during that period by the payment out of one loan and the taking of additional responsibility by one of the plaintiffs (Loan Tran) but that reorganisation does not alter the fact that borrowings had to be maintained by the plaintiffs or some of them from the 17 March 2007 to the date of trial and that, at all material times, the extent of the borrowings exceeded the purchase price.
During the course of the trial, this aspect of the plaintiffs claim has been referred to as the claim for compound interest. In a sense, this expression is inaccurate because the plaintiffs claim not so much compound interest but rather, the expense to which they have been put because they have not been able to retire debt. That expense consists of interest paid to various lenders which, over the period of the loan has been compounded by the lender pursuant to the terms of the loan agreement. If the plaintiffs’ claim is characterised in that way, and I think it is correct to do so, it clearly comes within the principles enunciated by both the Full Court of the Supreme Court of South Australia and the High Court in Hungerfords v Walker.
It was submitted by Mr Tredrea, counsel for the defendants, that the plaintiffs could not avail themselves of a claim for damages of this type because, as previously mentioned, a nil interest rate had been provided for in the contract in the event that there was default by the purchasers in payment of the purchase price. I do not accept this submission. I have already pointed out that the clause does not purport to exclude all remedies that may be obtained against a defaulting purchaser. It merely provides one specific remedy as set out in the terms of Clause 22. For some unknown reason, the parties did not avail themselves of this term because a nil interest rate was provided for. That does not mean, in my opinion, that all other remedies available to a vendor in respect of a defaulting purchaser were thereby excluded. To some extent this is recognised in Mr Tredrea’s written submission where he accepted that the terms of Clause 22 were expressed “without prejudice to any other right, power or remedy of the vendor by reason of such default”. He conceded that this part of Clause 22 permitted a vendor to claim interest under s39 of the District Court Act. It seems to me that if the clause permits alternative remedies to be granted, those alternative remedies include an assessment of damages of the type contemplated by Hungerfords v Walker.
In light of the foregoing, I hold that the plaintiffs may recover damages commensurate with the expense to which they have been put as a result of their inability to retire debt because of the non-receipt of the balance of the purchase monies from and after the 17 May 2006.
Mr Riggall, counsel for the plaintiffs, contended that the method of assessing the damages is to calculate compound interest on the sum of $163,975.00 applying interest rates applicable to the loans taken out by the plaintiffs both before and after the 17 May 2006 using monthly rests because interest was calculated and compounded pursuant to the terms of those loans by reference to monthly rests. I think he is correct in this regard, not only as a matter of proper assessment of damages of this type, but also because the factual basis for this method has been established. In other words, the existing loans, an expression I use to include the loans taken by the plaintiffs to purchase the business and the subsequent variations of loans effected after settlement, provided for the calculation of interest by reference to monthly rests, for the compounding of interest from month to month and for the application of interest rates which varied from time to time. This is apparent from the bank statements tendered in evidence where it is clear that for any given month, at the commencement point for the calculation of interest for that month, the amount in respect of which interest is calculated consists not only of any principal owing, but also any interest that remains unpaid. This method calculates interest on such a basis from month to month and allows as a credit whatever the monthly repayment consists of. Whether or not that is a true compounding of interest either in the arithmetical or accounting sense is not to the point. It is the method used by the lenders pursuant to the terms of the loans and it is by reference to that method that damages should be calculated.
The calculation is set out in Table A to the further written submissions filed by the plaintiffs. The commencement date is the 18 June 2006 which is after the date of settlement. The opening sum is $163,975.58 which allows for the deduction from the purchase price of the arrears of rent. The next column in the Table consists of interest rates applied from time to time. It was not disputed by the defendants that these were the applicable interest rates. The right hand column of the schedule sets out the amount of interest for the month and each line of the Table represents what has been referred to as compound interest for the particular month. The total of the interest claimed up to and including the 18 May 2009 is $43,861.00. To bring this figure up to date a further allowance of approximately $800.00 per month should be made to provide for interest up to the date of judgment. This amounts to approximately $2,000.00. In round figures I award the sum of $46,000.00 for Walker v Hungerfords damages.
Whether the conduct of the plaintiffs amounted to misrepresentation
I have already set out my finding as to what was communicated to the defendants in relation to the takings on 20 January 2006. As stated earlier, the defendants contend that I should infer that extensive gambling on Keno by Trung and/or Thi inflated the earnings from the agency by at least 50%. If such an inference is drawn, the defendants argued that Trung should have disclosed that fact to them and, in failing to do so, misrepresented the position as to the earnings from the agency.
There is no direct proof that Trung and/or Thi (the operators) gambled to the extent suggested. Their own evidence is quite to the contrary. The defendants’ case is circumstantial.
For that reason I bear in mind the speech of Lord Wright in Caswell v Powell [1939] 3 All ER 722 at 733 where his Lordship said:
The court therefore is left to inference or circumstantial evidence. Inference must be carefully distinguished from conjecture or speculation. There can be no inference unless there are objective facts from which to infer the other facts which it is sought to establish. In some cases the other facts can be inferred with as much practical certainty as if they had been actually observed. In other cases the inference does not go beyond reasonable probability. But if there are no positive proved facts from which the inference can be made, the method of inference fails and what is left is mere speculation or conjecture.
The decision of the High Court in TNT Management Pty Ltd v Brooks (1979) 23 ALR 345 is also instructive. In that case Gibbs J referred (at 349) to the earlier unreported High Court decision of Bradshaw v McEwans Pty Ltd, the following passage from which was cited in Luxton v Vines (1952) 85 CLR 352 (at 358):
‘Of course, as far as logical consistency goes, many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities, not with possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probably inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture . . . . . . . . . . But if the circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise.’
These cases set out the approach that I must take in determining what factual findings are open to me on the question of whether or not the plaintiffs misrepresented their earnings derived from the operation of the lotteries agency at the shop premises prior to January 2006.
The factual basis of the defendants’ submission is as follows. It was possible for the operators to obtain Keno tickets without paying for them immediately. The operators had unexplained shortages of money in the running of the business such as the arrears of rent totalling $15,023. On one occasion, the operators used money derived from the agency to pay bills incurred in respect of the delicatessen and food outlet so that there were insufficient funds in their bank account to pay the Lotteries Commission its dues. Licensing Commission statements (Exhibit P1-tab 21) showed the takings from Keno in one ten month period (1 July 2004 to 27 April 2005) were less than $400,000 and in the following financial year, for the same ten month period, the takings from Keno were about $1,100,000. However, the takings from the other types of gambling (and from the business generally) were largely the same for both ten month periods. The defendants contended that the operators had no plausible explanation for the increase in Keno sales. Evidence was also given by the defendants and Van’s wife that, not long after they took over the business, they found Keno tickets in the kitchen of the shop premises. One bundle was soiled and discarded. Other bundles were tendered in evidence (Exhibits D2-D8). Of these, several were winning tickets, according to the evidence of Jan-Marie.
Given that, if I am to draw the inference contended for, I must find that the operators expended at least $500,000 in a ten month period on personal gambling on Keno, the existence of these tickets, assuming they were tickets purchased by the operators, does not by itself, indicate gambling by them to the extent contended for by the defendants. If this evidence is accepted, it can only be part of the mosaic of circumstantial evidence which will either lead or not lead to the inference sought to be drawn.
The plaintiffs called an executive from the Commission, a Mr Hardy, who gave evidence about a number of topics. The main importance of his evidence relates to the question of whether or not the inference may be drawn that the operators engaged in extensive gambling on Keno. Mr Hardy was cross-examined by Mr Tredrea on this and other points, but the defendants adduced no other evidence, apart from their own, which could form part of the factual basis leading to the drawing of the inferences contended for on the question of operator gambling.
Mr Hardy’s evidence is crucial to the question of whether or not the inference contended for by the defendants may be drawn. He is the general manager of the Commission. He performs “the in-house solicitor role and manage[s] the compliance internal audit functioning area as well as [the] Quality Assurance Area.” (T194/9) He is also the company secretary of the Commission.
He said that agents (operators) are discouraged by the Commission from gambling through the agency they operate, but it is not prohibited (T195/29). He was aware that some agents have become problem gamblers (T196/6). Nothing had come to his attention that indicated that the 5 Star Delicatessen Agency operators were problem gamblers (T196/11).
Mr Hardy was asked about the monitoring of gaming turnover by the Lotteries Commission. He said that monitoring was carried out (T196/14). He explained the system of alarms relating to Keno (T196/17 et seq). If there was an expenditure of $500 or more in half an hour at an agency, an electronic alarm would go off at the Commission. An audit officer would then telephone the agency and speak to the agency’s “Keno contact” and ask for an explanation. An officer might attend an agency and conduct a cash count. “Profiles” of agencies are developed by this alarm system. Some have a profile of a high incidence of alarms. With this agency, for the period from October 2005 to December 2005, the alarms occurred at the rate of about sixty to seventy per quarter. Mr Hardy said that in general terms, this agency had a high level of alarms over a number of quarters (T197/10), but the effect of his evidence did not suggest that the Commission found a high level of operator gambling at the plaintiffs’ agency.
As to the cash counts, he said (T197/15 et seq):
AThey will attend, yes, and they will obviously firstly observe what is going on, so obviously if you have got high Keno turnover you will be expecting there are customers in the agency and they will then do a cash count, so the terminal will do a printout to indicate what sort of money one should expect in that till and they will then do a cash count, once having asked equally what was the float at the beginning of the day and they will then tally up to ensure there is enough cash in the till.
Mr Hardy was aware of only one unsatisfactory cash count recorded by the Commission in respect of this agency. The Commission’s records state (and I accept the accuracy of what was recounted by Mr Hardy) that the operators “had taken money out of that particular till to pay what [he believed] was a Coca Cola account and a cigarette account.” (T197/35) The audit officer who conducted the cash count recorded that invoices for the Coca Cola and cigarettes were produced and that the amounts shown on the invoices were consistent with the shortfall in the till.
Mr Hardy was also asked about the occurrence of what was referred to as “direct debit dishonours” (T199/1). He explained:
AWhen the agency is established, an agent is to nominate an account which we are entitled to sweep for the moneys that are due and owing, so that will happen and the next day after a sweep our Finance Section is alerted as to those that are dishonoured and that is circulated to the executive group and the territory manager for that particular agency will then chase up the agent. Say “look, its dishonoured, what is the reason?”
QHow does that work. Lets say hypothetically you’ve got, say, an $11,000 amount due to come out, if there is less than $11,000 in the account do you take what’s there?
ABank policy is that it will dishonour, so the bank won’t take anything, it will just say “the money wasn’t in the account” – “the money that you required was not in the account”, so it’s a dishonour.
QCould you illustrate that perhaps with some figures.
AIn your example, if there was $11,000 owing to us and there was $10,900 in that account, it would come back as a dishonour.
QYou were aware that there were a number of dishonours towards the end of this agency, particularly in April; is that right?
ACorrect.
QAnd on 26 April South Australian Lotteries suspended the account.
AI know that the agency was suspended; not the account, but the agency. The exact date, again I am sorry, but I know it was suspended at that time.
It is common ground that the agency was suspended on 26 April 2005, ie a few weeks before settlement was due in respect of the Sale and Purchase Contract. Chronologically, therefore, the dishonours giving rise to the suspension could not have been associated with any alleged operator gambling prior to the representation as to commission earnings. I mention also that part of the reasons for the suspension was the failure by the plaintiffs to provide a new counter for the agency’s operations as they were required to do. The only bearing this failure has on operator gambling is that, according to the defendants, the failure to refurbish indicates that the plaintiffs were short of cash and that this could be attributable to extensive gambling.
Mr Hardy was also asked about credit betting on Keno (T202/6). He said that sales are monitored continuously. The monitors look for anything unusual. The alarm set-up is part of the process of monitoring. The following passage from the evidence is important (T202/19 et seq):
A… we … attend an agency to cash count to try and ascertain whether credit betting is, in fact, taking place.
QCan I ask from your reading of the file whether there was any evidence that that was taking place in this agency between 2004 and 2006.
ANot on what I have seen. There was certainly no perception that that was taking place and in terms – as I say, there was one unsatisfactory cash account, which had a reasonable explanation to the audit officer. All moneys were in the till when they were required and at the end of the day we received the moneys for the entries. I also talk about audits on agencies; we also have, obviously those cash counts, but all agents also are naturally periodically audited on a rotational basis, so they will be audited at least once a year and sometimes twice a year where are audit officers will attend and that again involves a cash count at that point in time, so, again, a printout will generate from the terminal to indicate what sales have taken place and what money we would expect to have in the till.
Mr Hardy next dealt with sales fluctuations. The following passage in the evidence is relevant (T204/18 et seq):
QFirstly, is it common for there to be fluctuations in turnover.
AThere are, it’s based on obviously jackpot cycles. It’s well known that people get attracted to the larger jackpots so you will always get higher sales when there is a high jackpot and so depending on when you’ve got the likes of mega-draws planned, you will also have increased sales. You will notice that there is again a rise around Christmas time, for instance, in scratchies, which will be thrown in or used with the Christmas pudding or something like that; promotions will have an effect on sales and obviously promotions are undertaken at the end of the day with the hope that it results in an increase in sales, so, you know, there are a number of points that may contribute to that and obviously marketing sales, in relation to the their planning, do plan obviously at least twelve months ahead so we know when mega-draws are going to take place and ok, there are estimations when other jackpots, because we never know when a normal lotto-type game will jackpot, but they are built into budgets and so forth.
Mr Hardy was questioned further about significant fluctuations in Keno trading. In response he could give only general explanations as to why there might be significant fluctuations. His answers are of limited assistance, particularly because sales and marketing are not his field of expertise. What is important, however, is that his evidence does not support an inference being drawn that Thi and Trung engaged in extensive gambling by resort to credit betting on Keno.
The only other method of operator gambling on Keno would involve the investment over a ten month period of a sum of up to $500,000 obtained by Trung and Thi from outside the resources of the business conducted by the plaintiffs. In that regard, Jan-Marie agreed, when she gave evidence, that the income from the business could not have supported such gambling.
Mr Hardy was cross-examined about Keno gambling both generally and in relation to this agency. In particular, his attention was drawn to the Commission’s statements showing an increase in trading from nearly $400,000 to about $1,100,000 (T218/32 et seq). He was asked whether, state-wide, the Commission recorded such an increase in Keno gambling. He said (T219/13) that the Commission has never had, state-wide, a threefold increase in Keno sales in successive years. Mr Tredrea then asked (T219/19 et seq):
QWould it be a fair summary to say that the two and a half times, or heading towards three time increase in Keno sales for this agency were significantly greater than Keno increases generally for agencies over the period 04/05, 05/06.
AI would merely make the comment, yes, it is a significant increase. As to whether other agencies said they had that sort of increase over that period, I couldn’t comment.
In my opinion, when Mr Hardy’s evidence is considered as a whole and in conjunction with the defendants’ evidence (which I accept) about the low level of sales after they took over the business, the presence of lottery tickets in the kitchen and elsewhere after the takeover, the cash shortages and failure to upgrade the agency counter, it is not open to me to draw the inference that the operators engaged in extensive Keno gambling to the extent referred to. There may be any number of causes of the increase in Keno sales. Some of those causes might have combined to produce the significant increase that the records disclose. There is no doubt that sales fluctuated considerably from month to month (Exhibit P1-tab F, page 2). It would be pure speculation, unwarranted by the facts, to infer that operator gambling of the extent referred to had been engaged in by Thi and Trung or either of them. That being the case, the defendants’ counterclaim based on misrepresentation must fail for want of evidence. In those circumstances, it is not necessary to consider the question of whether or not, assuming there had been such operator gambling, the failure to disclose that fact by the plaintiffs constituted a misrepresentation by silence.
Item 1 of the Counterclaim for Damages
As previously stated, the first head of damage is a claim for the difference between the value of the business and the purchase price paid. In view of the fact that I have concluded that the defendants have failed to make out a counterclaim for damages based on alleged misrepresentation, it is not necessary to deal with this aspect of the counterclaim. However, given that I have already discussed the other heads of damage, for the sake of completeness I should mention briefly the approach that I would have taken to this head of damage, had I concluded that the defendants had made out a counterclaim for damages for misrepresentation.
I mention at the outset that the Misrepresentation Act (s7) does away with the distinctions formerly made between innocent, negligent and fraudulent misrepresentation. If the claim is brought pursuant to the Act, it is to be dealt with as if it were a claim based on a fraudulent misrepresentation.
If, as in this case, the purchaser of the business has affirmed the contract of purchase, it is open to the purchaser to claim the difference between the value of the business and the purchase price if a material misrepresentation is established. The first step in the process of establishing the quantum of the damages is to ascertain what the actual value of the business was either as at the date of the contract or the date of settlement by reference to the true situation. For example, if a representation had been made that takings prior to contract were $10,000.00 per month and the actual takings were $8,000.00 per month, the actual takings would be taken into account in assessing the value of the business together with all of the other factors that a qualified valuer would take into account in determining a value. If the actual value of the business at the relevant time was less than the purchase price paid, the purchaser would be able to recover the difference.
In this case, no valuation evidence was called by the defendants. Instead, the defendants sought to establish the actual value of the business at the time they acquired it by reference to the sale price obtained by them in November 2006. That approach, in my opinion, is insufficient. The sale price achieved by them in November 2006 is merely an indication of what the value of the business was after they had been operating it for about 6 months. In the absence of detailed evidence that the nature of the business and the way in which it was run had not been materially altered by the defendants during the period that they operated the business, it would be unsafe to use the purchase price obtained by them in November 2006 as an indication of the actual value of the business as at January 2006. Accordingly, even if the defendants had made out a case in misrepresentation, they would not have recovered damages under this heading.
Having reviewed items (3) - (6) of the counterclaim referred to at the commencement of these reasons, and found the defendants counterclaim wanting in that regard, there is the additional reason for disallowance of that aspect of the counterclaim because the defendants have failed to establish their claim based on alleged misrepresentation. I shall deal later in these reasons with the question of whether or not any of the two alternatives pursued in the counterclaim would enable some or all of these amounts to be recovered.
The Counterclaim for Damages under s15 of the Land and Business (Sale and Conveyancing) Act 1994
At the commencement of these reasons I indicated that there were two alternatives to the defendants primary counterclaim for damages for misrepresentation. I have already dealt with the alternative claim for damages for breach of contract, namely the claim for arrears of rent in the sum of $15,023.00 (see [19]).
Section 15 of the Act is as follows:
15 Remedies
(1) Where a vendor’s statement is not given or certified as required by this Part, or the statement given is defective, the purchaser may apply to a court of competent jurisdiction for an order under this section.
(2) On the hearing of an application under subsection (1) the Court may, if satisfied that the purchaser has been prejudiced by the failure to comply with this Part, exercise any one or more of the following powers:
(a) . . .. . . . immaterial.. . . . .
(b) award such damages as may, in the opinion of the Court, be necessary to compensate loss arising from the non-compliance;
(c) make such other orders as may be just in the circumstances.
Section 15(2)(a) of the Act is immaterial because it permits avoidance of the contract which is now not open to the defendants because they have affirmed the contract.
The arguments advanced by the parties in relation to this aspect of the counterclaim require me to determine whether or not a vendor’s statement was given and if so whether it was defective. I must also be satisfied that the defendants were prejudiced by the failure to comply with the provisions of the Act, in particular Section 8. That section is as follows:
8 Particulars to be supplied to purchaser of small business before settlement
(1) A vendor of a small business must, at least five clear business days before the date of settlement, serve, or cause to be served, on the purchaser a statement in the form required by regulation (signed by the vendor) setting out –
(a) the rights of a purchaser under section 5; and
(b) the prescribed particulars in relation to the business; and
(c) . . . . . . . immaterial …….
(2) The statement must have endorsed on, or attached to, it a certificate in the form required by regulation (signed by or on behalf of a qualified accountant, not being the vendor) certifying –
(a) that the accountant or a person acting on behalf of the accountant has examined the accounts of the business; and
(b) that the financial particulars disclosed under subsection (1)(b) appear to be in conformity with the accounts.
There are other applicable provisions the detail of which need not be referred to.
The document which the defendants contend was an inadequate vendor’s statement in compliance with provisions of the Act is Exhibit P1-10. It is inadequate on the number of grounds including the provision of inadequate details relating to trading up to January 2006 and the verification of trading figures by an accountant. There is also a dispute as to whether it was ever served. The defendants say that they were never served with a vendor statement either prior to settlement or at all. The plaintiffs assert that a copy of Exhibit P1-10was provided to the defendants prior to settlement. It is not necessary for me to resolve these disputes. Even if it is assumed that a vendor statement was never provided to the defendants, or if provided, it was deficient, this aspect of the defendants counterclaim must fail because they have failed to establish any resulting damage within the provisions of s15 of the Act.
The only heads of damage pursued by the defendants were those set out at the commencement of these reasons. I assume, although it is not clear, that the defendants contend that some, if not all, of the heads of damages are recoverable under s15. The difference in value is not recoverable because, as I have said, there is insufficient proof of the quantum of any difference. The amount of the arrears of rent is recoverable as contractual damages and therefore does not need to form part of this alternative counterclaim. In any event such an amount would not be recoverable under s15.
The other items (3) – (6) would not be recoverable under this alternative for the same reason given when I dealt with those heads of damages in respect of the claim based on an alleged misrepresentation.
For these reasons the defendants claim based on s15 of the Act cannot succeed.
In summary, the plaintiffs are entitled to judgment for the aggregate of $178,998.00 and $46,000.00. The defendants are entitled to judgment in the sum of $15,023.00. I will hear counsel as to how judgment is to be entered on the claim and counterclaim.
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