P.J. Berry Estates Pty Ltd v Mangalore Homestead Pty Ltd
[1984] FCA 295
•03 AUGUST 1984
Re: P.J. BERRY ESTATES PTY. LTD.
And: MANGALORE HOMESTEAD PTY. LTD.; MacROBERT GRANT ANGUS and DIANNE ANGUS
No. VG246 of 1983
Trade Practices
(1984) ATPR para 40 - 489
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Sweeney J.
CATCHWORDS
Trade Practices - agreement for sale and purchase of business - whether representations were in contravention of s.52 - whether second and third respondents were persons involved in the contravention within the meaning of s.75B - whether agreement should be declared void ab initio
Trade Practices Act 1974: ss.52; 75B; and 87
HEARING
MELBOURNE
#DATE 3:8:1984
ORDER
Tantallon has, in trade or commerce, engaged in conduct that was misleading or deceptive in contravention of s.52(1) of the Act.
Mr Angus was involved in that contravention, within the meaning of the Act. 3. The agreement dated 8 August, 1983 between the applicant and the respondents is declared to have been void ab initio.
The cross-claim of the respondents is dismissed.
The costs of the application of and incidental to the application, including any reserved costs, are to be paid by Tantallon and by Mr Angus.
The costs of the applicant of and incidental to the cross-claim, including any reserved costs, are to be paid by Tantallon and by Mr and Mrs Angus.
The applicant should bring in short minutes of orders by 13 August, including such consequential orders as it submits should be made, whether relating to the taking of accounts or of any other steps.
The case will be listed on 20 August, when the parties will be heard in respect of these minutes.
JUDGE1
This is an application by P.J. Berry Estates Pty. Ltd. (the applicant) in relation to its purchase of a business from vendors who were the respondent company, Mangalore Homestead Pty Ltd, which was formerly called Tantallon Turf Pty Ltd, and is referred to in these reasons as "Tantallon" and Mr & Mrs Angus, who were at all material times in control of Tantallon, Mr Angus being the managing director.
The agreement for the sale was dated 8 August 1983 and the business, which was conducted in partnership by Tantallon and Mr and Mrs Angus, was that of growing harvesting and selling turf and grass products. It is often referred to as the supply of "instant turf".
The applicant has alleged breaches of the Trade Practices Act 1974 (the Act) and a number of associated common law causes of action in respect of the purchase of the business.
Amongst other things, the applicant's amended Statement of Claim included the following paragraphs:
"3. For some time until the 1st September, 1983 the Respondents carried on in Victoria the business of growing, harvesting and selling turf and grass products.
4. By an agreement dated the 8th August, 1983 and entered into on or about the 1st September, 1983 (to the full term and effect of which the Applicant will refer at the trial of the action herein) the Respondents and each of them agreed to sell and the Applicant agreed to purchase for the price of $290,000.00 the goodwill and assets of the said business.
5. The following, inter alia, were terms and conditions of the said agreement and, in order to induce the Applicant to enter into the agreement, the Respondents and each of them represented and warranted to the Applicant as follows:
(a) That the Respondents were the beneficial owners, free from all encrumbrance, liens, charges and mortgages, of the said business and all the assets of the business agreed to be sold;
(b) That there are no contracts, agreements or arrangements of any description entered into by the Respondents in relation to the business or the assets agreed to be sold other than those entered into in the normal course of business;
. . . . . . . . . .
5A. In reliance upon the aforesaid representations and induced thereby, and/or in consideration of the said warranties, the Applicant made and entered into the said agreement.
6. It was, inter alia, a further term of the said agreement that the said agreement was subject to and conditional upon the Applicant on or before the 22nd August, 1983 entering into -
(a) a lease for a period of three years with an option for a further period of three years for an area of land being 172 acres situate at Tabilk owned by Malabar Park Stud Pty. Ltd. the rental for which would be .20 cents per square metre of turf lifted from the said land at Tabilk with a minimum annual rental of $30,000.00;
(b) an agreement for three years for the provision of maintenance and agricultural services by Cornthwaite Pty. Ltd. on the basis of a payment of .21 cents per square metre of turf lifted subject to annual adjustment on the basis of the Consumer Price Index. .
7. In performance of the said agreement the Applicant paid to the Respondents $75,000.00 being part of the said price of $290,000.00 and agreed to the lease with Malabar Park Stud Pty. Ltd. referred to in paragraph 6(a) hereof and the agreement with Cornthwaite Pty. Ltd. referred to in paragraph 6(b) hereof.
8. The Respondents and each of them were in breach of the said agreement and the terms and conditions thereof referred to in paragraph 5 hereof, the warranties referred to in paragraph 5 hereof were breached, and the representations referred to in paragraph 5 hereof were false, in that -
(a) the Respondents were not the beneficial owners, free from all encumbrances, liens, mortgages and charges, of the said business and all the assets of the business thereby agreed to be sold;
(b) there were contracts, agreements or arrangements entered into by the Respondents in relation to the said business or the assets agreed to be sold other than those entered into in the normal course of business;
. . . . . . . . . .
. . . . . . . . . .
Particulars
(a) The Respondents were not the sole beneficial owners of the said business in that one Maurie Thomas had a share, or was a partner, in the said business, in that he was entitled to 7 1/2 percent of the proceeds of all sales of turf stock made by the business.
(b) The Respondents had entered into a management agreement in relation to the business which had not been entered into in the ordinary course of business whereby one Maurie Thomas was entitled to 7 1/2 percent of all proceeds of sale of stock of the business;
. . . . . . . . . .
By reason of :
(a) the aforesaid breaches of the said agreement and/or of the said warranties; and/or
(b) the false representations referred to in paragraphs 5 and 8 hereof -
the Respondents and each of them have repudiated the said agreement and have evinced an intention not to be bound thereby.
9A. The Applicant has accepted the aforesaid repudiation as putting an end to the said agreement.
9B. Alternatively to paragraph 9A hereof, the Applicant by reason of the matters referred to in paragraphs 5 and 8 hereof became entitled to, and did, rescind the said agreement.
9C. Notwithstanding :
(a) the Applicant's acceptance of the aforesaid repudiation of the said agreement by the Respondents; or alternatively
(b) the Applicant's rescission of the said agreement-the Applicant in order to ensure that restitution can be given and in order to mitigate its losses has retained possession of the said business and has thereby sought to preserve, so far as possible, the assets and goodwill of the said business.
9D. In the premises, the Applicant is entitled to the return of the amount of $75,000.00 paid by the Applicant to the Respondents pursuant to the said agreement and, in addition, to reimbursement of the costs of terminating the contracts between the Applicant and Cornthwaite Pty. Ltd. and between the Applicant and Malabar Park Stud Pty. Ltd. that it entered into in pursuance of the terms of the said agreement referred to in paragraph 6 hereof.
9E. Further or alternatively, the giving of each of the said warranties, and the making of each of the said representations, by or on behalf of the Firstnamed Respondent constituted conduct by the Firstnamed Respondent in trade and commerce that was misleading and/or deceptive and/or was likely to mislead or deceive in contravention of Section 52 of the Trade Practices Acts 1974 ("the Act").
. . . . . . . . . . . .
9G. Further or alternatively, the Secondnamed Respondent and the Thirdnamed Respondent and each of them have :
(a) aided, abetted, counselled and/or procured;
(b) induced;
(c) been directly or indirectly knowingly concerned in;
(d) conspired to effect -
the contraventions of the Act by the Firstnamed Respondent that are referred to in paragraphs 9E and/or 9F hereof.
9H. By reason of :
(a) the breaches of the said agreement and/or of the said warranties referred to in paragraph 8 hereof;
(b) the contraventions of the Act on the part of the Firstnamed Respondent referred to in paragraphs 9E and/or 9F hereof; and/or
(c) the involvement of the Secondnamed Respondent and/or the Thirdnamed Respondent in such contraventions of the Act as more particularly described in paragraph 9G hereof -
the Applicant has suffered and is continuing to suffer loss and damage.
10. Further, and in the alternative, in order to induce the Applicant to enter into the said agreement the Respondents, or alternatively the Firstnamed and Secondnamed Respondents, represented and warranted to the Applicant as follows:
. . . . . . . . . .
(1) There were no significant costs incurred in conducting the said business other than -
(i) the labour contract with one George Stray for the sowing of the turf;
(ii) the labour contract with Cornthwaite Pty. Ltd. for preparing, farming, cultivating, mowing and lifting the turf;
(iii) the royalty payable to Malabar Park Stud Pty. Ltd. in lieu of, or by way of, rent for the lease of the said land on which the said business was conducted;
(iv) the cartage contract with one Richards; and
(v) the cost of materials, such as, seed, fertilizers and sprays, used in the production of the turf, and electricity maintenance, car and office costs.
(m) In the 12 month period to 30th June 1983, the level of profits of, and the level of sales made by, the said business and the said business's share of the market for turf were not attributable to, or affected by, any unusual events or other circumstances not disclosed to the Applicant.
(Particulars were then given)
11. Further, and in the alternative, the warranties and representations referred to in paragraph 10 hereof were given and made by the Respondents in consideration of the Applicant entering into the said agreement.
12. Each of the representations referred to in paragraph 10 hereof was false and untrue, and each of the warranties referred to in paragraph 10 hereof was breached, in that:-
. . . . . . . . . .
(1) There were significant costs incurred in conducting the business other than those referred to in paragraph 10(1) hereof, namely the payment to Maurie Thomas of 7 1/2 percent of the proceeds of all sales of turf stock made by the said business;
(m) In the 12 month period to 30th June 1983, the level of profits of, and the level of sales made by, the said bussiness, and the business's share of the market for turf were in each case attributable to and/or affected by unusual events of the market for turf in Victoria;
(i) the failure of the turf crop in Victoria about April 1983.
(ii) the merger of the business of Tantallon Turf Pty. Ltd. and the business conducted by the said Maurie Thomas under the trade name "Exclusive Grasslands" in about April 1983.
13. The Respondents, or alternatively the Firstnamed and Secondnamed Respondents, knew that the representations referred to in paragraphs 5 and 10 hereof and each of them were false.
14. In reliance upon each of the representations referred to in paragraph 10 hereof, and/or in consideration of each of the warranties referred to in paragraph 10 hereof, the Applicant entered into the said agreement whereby it agreed to purchase the said business from the Respondents and the Respondents agreed to sell the same to the Applicant.
15. By reason of the matters aforesaid, the Applicant became entitled to, and did, rescind the said agreement.
16. Notwithstanding the Applicant's rescission of the said agreement, the Applicant in order to ensure that restitution could be given and in order to mitigate its losses retained possession of the said business and has thereby sought to preserve, so far as possible, the assets and goodwill of the said business.
17. In the premises the Applicant is entitled to the return of the amount of $75,000.00 paid by the Applicant to the Respondents under the said agreement and to reimbursement of the costs of terminating the contracts between the Applicant and Cornthwaite Pty. Ltd. and between the Applicant and Malabar Park Stud Pty. Ltd. that it entered into in pursuance of the terms of the said agreement referred to in paragraph 6 hereof.
18. Further and alternatively, by reason of the matters referred to in paragraphs 10, 11, 12, 13 and 14 hereof, the Firstnamed Respondent in the course of trade or commerce in Australia :-
(a) has engaged in conduct that is misleading and/or deceptive;
(b) has engaged in conduct that is likely to mislead and/or deceive; and/or
. . . . . . . . . .
in contravention of Sections 52 . . . of the Act.
18A. Further or alternatively, the Secondnamed Respondent and the Thirdnamed Respondent and each of them have :-
(a) aided, abetted, counselled and/or procured;
(b) induced;
(c) been directly or indirectly knowingly concerned in;
(d) conspired to effect -
the contraventions of the Act referred to in paragraph 18 hereof.
. . . . . . . . . . . .
22. By reason of :-
(a) the contraventions of the Act referred to in paragraph 18 hereof;
(b) the involvement of the Secondnamed Respondent and/or the Thirdnamed Respondent in such contraventions of the Act, as more particularly described in paragraph 18A hereof;
. . . . . . . . . .
the Applicant has suffered and is continuing to suffer loss and damage."
This amended Statement of Claim was based upon common law precedents. In it the alleged contraventions of the Act, which found the jurisdiction of this Court, were pleaded as alternatives to the common law claims, and the conduct relied upon was described by reference back to those claims. It would be of more assistance to respondents and to the Court if causes of action said to arise under the Act were pleaded directly in the first instance, with particulars which did not relate back to common law claims.
The respondents, as the matter stood after their counsel's final address, admitted the allegations contained in paragraph 5 of the statement of claim and accepted that the allegations contained in paragraph 5A had been made out. They denied the allegation contained in paragraph 8(a) and contended that "on no view of the facts could it be said that Mr Thomas had an interest in, still less was a beneficial owner of or a partner in, the business of "Tantallon Turf" Paragraph 8(b) was denied and the respondents said in their defence that "an agreement with Maurice Thomas had been entered into in the ordinary course of business, and that the applicant was aware of the existence of such agreement" Paragraphs 10, 12, 13 and 14 were also denied.
There were issues between the parties as to whether the representations alleged in paragraph 5(a) and (b) were false and as to whether the respondents knew them to be false. There were also issues as to whether the representations alleged in paragraphs 10(1) and (m) were made, whether they were false, whether the respondents knew them to be false and whether the applicant was induced by them.
For a period of two years, commencing in March 1978, Mr Angus had worked for Strathayr Instant Lawn, then the biggest supplier of instant turf to the Victorian market. He began as farm manager and claimed that he eventually assumed full financial control of that business. Mr Angus left Strathayr to commence his own business, which he named Tantallon Turf. Initially his business bought turf from growers and resold on the retail market, but then it started to grow its own turf, the first crop being sown in December 1980. The business expanded quite rapidly and for a period in the early months of 1983 Tantallon recorded the largest level of sales of any Victorian grower.
It is necessary to consider the relationship which developed between Tantallon and Mr Maurice Thomas, who had commenced business as a turf wholesaler in September 1981 trading under the name Exclusive Grasslands (Aust). His business involved buying turf from growers and then reselling it, mainly to landscape gardeners and builders in the Melbourne metropolitan area. From September 1981 until April 1982 Mr Thomas made all his purchases of turf from a Benalla grower. In April 1982 he began to buy some turf from Tantallon, and by October 1982 he was buying all his turf from Tantallon.
Mr Thomas gave evidence that in January 1983 he discussed the possibility with Mr Angus of an amalgamation of their businesses. Mr Thomas said that, as he purchased all his supplies of turf from Tantallon, he was worried about being "at the mercy of one supplier on prices increases and things like that". He said that he was also prompted to suggest the amalgamation because of the inefficiency and expense of the businesses advertising and competing against each other for retail sales. The discussions continued in February and March, and according to Mr Thomas an agreement was reached. The customers of Exclusive Grasslands were to buy their turf directly from Tantallon. Mr Thomas was to be employed by Tantallon and was to be responsible for sales, marketing and public relations with customers. The costs associated with these responsibilities were to be paid by Tantallon. The terms of Mr Thomas's employment were to be that he would receive a commission of 7 1/2% on all sales of Tantallon to any of its customers; he was to be entitled to 12 months notice if his employment were to be terminated; and he was to be entitled at the end of his employment to receive a sum, in addition to commission, equivalent to the commission he had earned from the previous 12 months employment.
Mr Thomas said that this agreement with Mr Angus was reached in late March 1983 and that it operated from 1 April. He said that it was agreed that Mr Angus's solicitors would draw up a written document to record the agreement. Mr Thomas gave evidence that he asked Mr Angus about the progress of the written agreement on several occasions and was told by Mr Angus that he was very busy. Mr Thomas said that Mr Angus contracted glandular fever and for a time he ceased to push him about the written agreement.
Late in April 1983 a circular was sent to all Tantallon customers including the former customers of Exclusive Grasslands, and all landscape gardeners listed in the yellow pages of the Melbourne Telephone Directory. The circular was as follows.
"TANTALLON TURF PTY. LTD.
The Growing Australian Phone: 602 4725 (057) 96 2466 A.H. 735 5163 P.O. Box 152, Seymour, 3660
Notice To All Landscape Gardeners and Contractors
"A TANTALLON EXCLUSIVE"
We have now amalgamated with the firm Exclusive Grasslands (Aust.) in the interests of increased efficiency, and are now able to pass this efficiency on to users of our Instant Lawn in the form of a price reduction]
After having recently increased our prices marginally we now find we are able to return to our Pre-Christmas pricing of:-
$1.70 per m2 with a $10 deliv. for areas less than 100m2
HOWEVER]] Others in the industry have cut prices for a $1.50 m2 short period in an endeavour to regain cash flow. $20 deliv. We appreciate how important price is at present under 100m2 and would not want customers forced to go elsewhere in order to keep costs down, so we shall match C.O.D. price for this period.
- - - - - - - - - - - - - - - - - - - - - - - - - AVAILABILITY - - - - - - - - - - - - - - - - - - - - - - - - -
If you have been concerned about supply due to the drought FORGET IT] Both our nurseries at Mangalore and Tabilk have massive underground water reserves thus eliminating the problems associated with limited water usage.
As the largest grower of instant Lawn in Victoria, TANTALLON TURF Pty. Ltd. has approximately a half million square metres of Kentucky Blend Turf under cultivation of which 250,000 m2 is available for immediate delivery.
It has grown nicely to maturity resulting in greater resistance to breakup, with speedier and more efficient laying. Now you need never use Turf aged less than 12 months again.
REMEMBER - IF THE GRASS IS GREENER ON THE OTHER SIDE .IT PROBABLY CAME FROM TANTALLON TURF
- - - - - - - Suppliers of Domestic and Commercial Instant Lawn - - -
Nurseries - - "Mangalore Homestead Mangalore. Tantallon Park Tabilk"
For present purposes, the most significant passage in this circular was the statement, "We have now amalgamated with the firm Exclusive Grasslands (Aust)," which substantially accorded with Mr Thomas's account of the arrangement between him and Tantallon.
Mr Thomas gave evidence that Mr Angus had approved the contents of the circular, and that from 1 April he began telling the former customers of Exclusive Grasslands to ring Tantallon directly.
He calculated that the former customers of Exclusive Grasslands represented a minimum of 42% of the total sales of Tantallon under the new arrangement.
Mr Thomas thought that the new arrangement had worked very satisfactorily for the first three months of its operation from April to June.
However, he found it very strange when he discovered in late July 1983 that Mr Angus had earlier decided not to place a new advertisement in the Yellow Pages, which he had prepared and Mr Angus had approved, and which contained the after hours telephone number of Mr Thomas. Instead Mr Angus had arranged to continue the old advertisement, which did not contain the after hours number.
Mr Thomas said that when he pressed Mr Angus again on several occasions in July concerning the need to have their agreement put in writing, Mr Angus would reply that he would be seeing his solicitors on the following Thursday.
Mr Thomas and Mr Angus had organised a lunch which was to take place on 25 August 1983 with representatives of Jennings Industries who were fairly big users of turf, in an endeavour to obtain their business. On the previous day, when Mr Thomas rang Mr Angus about the lunch, the latter said "Well, as a matter of fact, I have sold the business." He named Mr Berry as the purchaser, and said that he knew of "our agreement" and would probably continue it as it was. He gave Mr Thomas Mr Berry's telephone number but told him that he would not be able to contact him for a while as he was "in Queensland for three weeks".
Mr Thomas found when he rang Mr Berry that there was no answer and he then telephoned his own solicitor and on his advice went to Mangalore to see Mr Angus who said that Mr Berry knew all about "our agreement" and basically would continue the same agreement. While he was with Mr Angus, he asked him about his June and July statement in relation to his commission, which he had not received. Mr Angus gave him some figures in respect of June and July, which he wrote down, and paid him for those months.
Mr Angus gave a different version of these events. It was not disputed that Exclusive Grasslands' account with Tantallon was in arrears in the last months of 1982 and the early months of 1983. In March 1983 Exclusive Grasslands was indebted to Tantallon in the sum of about $12,000.00. This was a period during which the turf industry generally was experiencing a downturn because of the drought and the severe water restrictions in force in the Melbourne metropolitan area. Mr Angus said that he was worried about Mr Thomas's account and regarded him as a bad debt. He said that he spoke to Mr Thomas concerning the state of his account in January 1983 and had several later discussions with him. Mr Thomas said to him:
"If you decide to chase the debt very hard I will just declare bankrupt and I'll go and live on the Gold Coast."
Mr Angus said that he pressed Mr Thomas to suggest a satisfactory arrangement concerning the account. Mr Thomas proposed that he should enter into an agreement of the character which Mr Thomas alleged that he accepted but he rejected it. Discussions continued but Mr Angus said that towards the end of March, no agreement having been reached, he told Mr Thomas that he could not extend him any more credit. Mr Thomas told him that his situation was getting "fairly desperate" and that he wanted to start working for Tantallon as a salesman on a 7 1/2% commission. Mr Angus said that he told Mr Thomas that he could begin on April 1, on that basis. Mr Angus said that the agreement was simply that Mr Thomas would receive a 7 1/2% commission on the total sales of Tantallon.
Mr Angus said:
"We at that stage already had spoken to other people about the marketing side of our business and Mr Thomas spoke to us and when he put it in the way that it was the only way we had of getting our money, naturally we said, well, we have everything to gain and nothing to lose by letting him sell on commission for us."
Mr Angus gave evidence that it was initially agreed that the whole of the commission which Mr Thomas earned would be applied against his account in reduction of his indebtedness to Tantallon. He said that at that time Mr Thomas had told him that he expected to be able to cover his living expenses from cash generated by debtors of Exclusive Grasslands paying their accounts. However when Mr Thomas later told him that he was unable to do so Mr Angus agreed that he could receive part of the commission in cash. Mr Angus said that the agreement was to last until Mr Thomas had paid off his debt and that no agreement had been made as to what would happen thereafter.
Mr Angus deposed that in early April, soon after Mr Thomas had started working for Tantallon, he instructed him to send out a circular. He said that he told Mr Thomas what price to insert and to include a statement that customers would be purchasing the same turf as before. He said that otherwise he did not approve the contents of the circular or indeed even see it before it was printed and circulated. He denied having a careful look at the document before it was circulated. It was not disputed that Tantallon had paid for the printing and postage expenses relating to the circular.
Mr Thomas gave evidence that he had calculated that during April and May 1983 a minimum of 42% of the sales of the Tantallon business were to customers who formerly had bought from Exclusive Grasslands. Mr Angus, although he did not accept this figure as being correct, said that he was not in a position to deny it and admitted that the proportion of sales made by Tantallon to former Exclusive Grasslands customers in May was a "substantial amount."
There was a marked conflict of evidence on the subject of the Tantallon circular of April 1983. Mr Angus had previously used circulars, and thought them to be very useful. It is highly unlikely that he, who presented as a more dominant and literate person than Mr Thomas, would have left the latter, who had only been employed by Tantallon for a few days, at liberty to prepare and distribute the circular without his prior approval of its contents. The circular was of obvious importance to the Tantallon business in that it was designed to announce two significant events, namely that the former customers of Exclusive Grasslands were now dealing directly with Tantallon, and a major reduction in the selling price of its turf. The denials by Mr Angus that he had not seen nor approved of the circular prior to its distribution were in my opinion false, conflicting as they did with admissions he later made to Mr Berry. These denials sprang from a recognition of the consequences to his case of a finding to the contrary, especially in relation to the statement that Tantallon had amalgamated with Exclusive Grasslands.
Another illustration of this conflict of evidence relates to the agreement between Mr Thomas and Mr Angus. I find it inherently improbable that Mr Thomas would have been prepared to introduce his customers as direct customers of Tantallon on the basis of receiving a 7 1/2% commission on all Tantallon sales, if the arrangement could be terminated at will by Tantallon without any compensation to him. It was not a case of Tantallon engaging an employee but rather a case of two parties, each with an established business, agreeing to an arrangement whereby those businesses would come together and operate under the Tantallon flag.
As matters stood before Mr Angus decided to advertise the Tantallon business for sale, the position was that a substantial amount of the sales of the business were to customers who had historically been customers of Exclusive Grasslands and who had continued to receive service from Mr Thomas in his new role with Tantallon. They had been brought to Tantallon by Mr Thomas and it was more likely than not that, in the event of any falling out between Mr Thomas and Tantallon, they, or a high proportion of them, would follow him if any parting of the ways occurred. At the very least, there was a grave risk that that would happen. There were ample quantities of suitable turf available from suppliers other than Tantallon.
It is neither necessary nor desirable to attempt in this case to reach a definitive finding on the precise terms and legal effect of the agreement reached between Mr Thomas and Mr Angus.
Not desirable, because Mr Thomas appeared in this case as a witness, not as a party, and not necessary, because it is sufficient for the purposes of this case to find, as I do, that during the whole of the period of the negotiations between Tantallon, Mr and Mrs Angus and the applicant and Mr Berry the facts were that:
1. Mr Thomas was persisting in the claim that there was an agreement between himself and Tantallon in the terms which have been set out above.
2. If for any reason there was a parting of the ways between Mr Thomas and Tantallon there was a probability that the former customers of Exclusive Grasslands, or a high proportion of them, would also leave Tantallon and follow Mr Thomas.
3. If Tantallon lost those customers, or a high proportion of them, it would be likely to have a serious effect on the turnover and viability of its business.
4. The mere existence of the risk of such a loss would be a matter of deep concern to anyone considering the purchase of Tantallon's business.
5. Such a possible purchaser would have needed to consider the nature of the alleged arrangement with Mr Thomas in order to decide whether he himself could reach a satisfactory arrangement with Mr Thomas so as to continue to secure his customers for the business. In order to do so, it would have been necessary for a purchaser to agree to continue payment of 7 1/2% commission on all sales and provide Mr Thomas with an arrangement suitable to him in respect of the possible future termination of his agreement of the character of that upon which he was insisting.
6. A purchaser, especially one in the position of Mr Berry who was himself a marketing man, as Mr Angus knew, might well decide that he did not wish to buy a business which was subject to the claim by Mr Thomas.
7. The position in the Victorian market for instant turf was that Strathayr, as a result of two crop failures, had stock shortages throughout the whole of 1982 and that, as its sales fell, those of Tantallon rose. Before the negotiations between Mr Berry and the respondents began, Strathayr was once again in full production and determined, as its managing director told Mr Angus, to regain its strong position in the market by an aggressive marketing and price - cutting campaign. It seems to me more probable than not that Mr Angus, despite his evidence to the contrary, was aware both of Strathayr's 1982 difficulties with its crops and of its 1983 recovery. The instant turf industry in Victoria is small, with less than a dozen producers supplying, in the main, landscape gardeners, contractors and builders. Although it appeared that Mr Angus was something of a "loner" in the industry, it seems to me likely that he became aware of so striking a fact as Strathayr's crop difficulties. He was a former employee of Strathayr and one of his employees had come to him from Strathayr.
It is in this setting that the evidence of the negotiations between Tantallon and Mr Berry for the applicant is to be considered. Mr Berry gave evidence that Mr Angus had told him during these negotiations that Exclusive Grassland was a bad debt of the business and that its proprietor "was selling a little bit of turf on commission . . . to work off his debt." He said that he was not told of the nature of its business other than it purchased turf from Tantallon and resold it. He said that he could not recall that Mr Angus identified Mr Thomas by name. He said that Mr Angus did not indicate that Mr Thomas had any other association with the business of Tantallon.
He said that he was told that Mr Thomas was receiving commission only on sales which he introduced, and that he was not told that Mr Thomas was entitled to a commission on all sales made by Tantallon nor was he told the rate of commission which Mr Thomas was receiving. He said that no mention was made of any merger of the businesses of Exclusive Grasslands and Tantallon.
According to Mr Berry, the only significant costs incurred in the business which were disclosed to him were said to be those related to the contracts for the sowing, preparation, farming, cultivating and lifting the turf, in respect of the royalty arrangement for the use of the land of Malabar Park Stud Pty Ltd, for the cartage contract and for the cost of materials, electricity, maintenance, together with car and office costs.
Mr Angus gave evidence that he told Mr Berry that "we had a person who was unable to pay his debt with us, and he was working for us as a commissioned salesman looking after the marketing side at this stage." He said: "Mr Berry's reaction was, Well, my speciality is marketing and I doubt very much whether I'll need that person. I said: Well, there's no people going with the business. You are available to have everyone if you want to." He said that he was certain that he named Mr Thomas.
During his cross-examination Mr Angus was asked the following questions and gave the following answers:
"You never told Mr Berry that you had a selling cost that the business was incurring through this 7 1/2 percent arrangement with Morrie Thomas, did you? --- Mr Berry had asked what the marketing costs were. I had told him what I believed they were re advertising etcetera. Mr Berry had been told, as I have said before, about Mr Thomas and his reaction was: I do not think I will have need for him but can we just leave it at this stage, I want to think about that further. So if Mr Berry was not informed, and I believe he possibly was, it would be because Mr Berry was not going to incur that cost because he did not require a sales person.
He did not require somebody who was working off his debt by making sales on commission? ---Mr Berry had the full explanation put to him. In fact, I even went to the extent to tell Mr Berry that if he had some use for Mr Thomas, if they came to some mutual agreement re having Mr Thomas work for him, I would be willing to not put any pressure on Mr Thomas re his account and let him - and we would just let him work that out the best he could."
Where this is any conflict between the evidence of Mr Angus and that of Mr Berry I prefer the evidence of Mr Berry. In the result, I find that Mr Berry was not told that Mr Thomas was receiving a commission in the rate of 7 1/2% nor was he told that the commission was on all of the sales of Tantallon, whether they were introduced by Mr Thomas or not. Mr Berry was not told that Mr Thomas had assumed responsibility for the whole of the marketing and selling of the Tantallon business. All that was said was that Mr Thomas was a bad debt who was selling a bit of turf on commission to work off his debt. He was not told of Mr Thomas's claim to an arrangement with Tantallon in the terms to which Mr Thomas has deposed, or of the existence of any claim of this nature. Nothing was said to Mr Berry about the fact that a substantial proportion of the sales of Tantallon from 1 April onwards were to the former customers of Exclusive Grasslands who had followed Mr Thomas to Tantallon to become its direct customers.
It is not difficult to appreciate that Mr Berry received what he described as "quite a surprise" when Mr Thomas telephoned him on 1 September and said "I have got to talk about our business." Mr Berry met Mr Thomas several days later and had several telephone conversations with him following that meeting. In the end Mr Thomas went his own way and commenced working with Strathayr on 1 October. Mr Thomas said that he approached all his old customers from Exclusive Grasslands and "a very large proportion of them" agreed to go across to Strathayr with him. He said that 80% of the customers which he had brought over to Tantallon from Exclusive Grasslands left Tantallon and went to Strathayr with him. Whatever chance there may have been of Mr Berry and Mr Thomas coming to some arrangement was effectively precluded by Mr Angus having successfully planted in Mr Berry's mind that Mr Thomas was properly to be regarded as an unsatisfactory customer and a bad debt.
Tantallon's books of account were put in evidence. They contained a number of pencil entries made by Mrs Angus in respect of the 7 1/2% commission to which Mr Thomas was entitled. These books were examined in detail by Mr Calver, an accountant acting on behalf of Mr Berry in respect of the possible purchase. This examination was carried out on 22 July 1983 and Mr Calver swore that those entries were not then present.
Both Mr and Mrs Angus swore that the entries were already present on that day and it was part of their case that the applicant, through Mr Calver, had ample opportunity to note them and appreciate their significance as showing the entitlement of Mr Thomas to 7 1/2% on all sales. Had they been present, I am satisfied that Mr Calver would have been put on enquiry by them but I accept his evidence that his detailed examination did not reveal the, for the simple reason that they were not there.
The evidence on behalf of the respondents was in direct conflict with that of Mr Thomas in relation to the arrangement with him, with that of Mr Calver in relation to the entries in the books, and with that of Mr Berry in relation to what he was told of the association between Tantallon and Mr Thomas and of the arrangement between them. This conflict was not in respect of mere matters of detail or emphasis but was fundamental.
Having seen the witnesses give evidence at length, I am satisfied that Mr Berry, Mr Calver and Mr Thomas were reliable witnesses of truth. The evidence of Mr and Mrs Angus cannot fairly be described in similar terms. Mr Angus was prepared to give such evidence as he felt necessary to defeat the applicant's case and his wife was willing to support him. I reject their evidence where it conflicts with that of Mr Berry, Mr Thomas or Mr Calver.
Section 52(1) of the Act provides:
"A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."
In my opinion Tantallon, in trade or commerce, engaged in conduct that was misleading or deceptive, in describing Mr Thomas, as Mr Angus did, as a customer who was listed as a bad debt and who was selling a bit of turf on commission to work off his debt, and in concealing from Mr Berry the true history and nature of the relationship between Tantallon and Mr Thomas and his former customers, the truth in respect of the arrangement with Mr Thomas and of the claims he was making in respect of it, and the truth in respect of the affect of the arrangement with Mr Thomas upon the costs of Tantallon's business.
Section 75B of the Act provides:
"A reference in the Part to a person involved in a contravention of a provision of Part IV or V shall be read as a reference to a person who-
(a) has aided, abetted, counselled or procured the contravention;
(b) has induced, whether by threats or promises or otherwise, the contravention;
(c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention."
I am satisfied that Mr Angus was a person involved in the contravention by Tantallon within the meaning of s.75B. Mr Angus was in effective control of Tantallon and conducted the negotiations relating to the sale of the business on its behalf. In my opinion he was aware of the essential facts and matters constituting the contravention by Tantallon, including the fact that Tantallon's conduct was misleading or deceptive. see Yorke v Lucas (1983) 49 A.L.R. 672.
The issue as to whether Mrs Angus was involved in the contravention is not so clear. She was, together with Mr Angus and the first respondent, a partner in the Tantallon business which was the subject of the sale. Accordingly she was a party to the agreement, which contained a clause in terms of paragraph 5(a) and (b) of the Statement of Claim. Mr Berry gave evidence that when he first telephoned Tantallon in response to an Age newspaper advertisement he spoke to Mrs Angus and she told him that he should speak to her husband. Later he was asked whether Mrs Angus took part in the second meeting on 18 July to which he replied:
"Mrs Angus came in once or twice and made us a cup of coffee and answered one or two questions, but basically it was with Mr Angus."
Mrs Angus gave evidence that she had participated to a limited amount in the discussions at the third meeting on 22 July. There was little other evidence of the role which she played at the meetings and in the negotiations and of the knowledge she possessed.
In Yorke v Lucas, supra, a Full Court of this court held that, to be involved in a contravention within the meaning of s.75B of the Act, a person must have knowledge, actual or constructive, of the essential facts and elements necessary to constitute a contravention. It is not sufficient to render an individual liable if he is shown to be aware of some only of those facts and elements. Yorke v Lucas was applied by another Full Court in Sent v Jet Corporation of Australia Pty. Ltd., unreported Melbourne 6 July 1984.
In my opinion, the evidence has not established that, before the sale was concluded, Mrs Angus had knowledge, actual or constructive, of all the essential facts constituting the contravention by Tantallon. Accordingly I am not prepared to make a declaration that Mrs Angus was involved in that contravention within the meaning of the Act.
I am satisfied that the applicant is entitled, in respect of the conduct examined above, to declarations that Tantallon has, in trade or commerce, engaged in conduct that was misleading or deceptive in contravention of s.52(1) of the Act, and that Mr Angus was involved in that contravention.
The applicant alleged further contraventions of the Act in respect of other conduct of the respondents including that relating to representations about the area of turf, its condition, the area which was free from weeds, the area of turf expected to be sold by the business in the year commencing September 1983, and its share of the Victorian turf market, present and anticipated.
The applicant eventually did not press claims based upon fraudulent misrepresentation and negligent misrepresentation but continued to rely upon alleged breaches of contract.
In the course of the hearing, many days were taken up by evidence and submissions relating to such matters as the presence or absence of weeds, the proper methods of spraying for them, the unevenness of the paddocks, its possible causes, and appropriate treatment, methods of irrigation and the skill of the applicant and respondents in managing the property.
I have not stayed to resolve these claims and issues. I am conscious of the fact that the most critical period of the year for the turf crop, which is the subject of this litigation, is fast approaching and that is important to the parties to have the earliest possible resolution of the question of who should be responsible for the management of this vulnerable asset.
The applicant sought an order that the agreement between the parties dated 8 August, 1983 be declared to have been void ab initio. In my opinion, the contravention here established is sufficiently serious to justify the grant of this relief. The total price of $290,000 for the business was made up as follows:
(1) Goodwill of the business $125,000
(11) Stock $100,000
(iii) Plant and Equipment $ 65,000.
The goodwill figure was based upon the past and anticipated sales of the business, which depended upon the past and future relationship between it and its customers.
Had the true history of the relationship between Tantallon and Mr Thomas and his old customers been disclosed, it would have revealed that those old customers were very new customers of Tantallon, and their continued allegiance to Tantallon was dependent upon Mr Thomas remaining with Tantallon on terms satisfactory to him. The business reality was that Tantallon purported to sell its goodwill as if there were nothing to distinguish the relationship between it and its customers from that ordinarily obtaining in such a business. There was in fact a very important difference, which confronted the purchaser with the dilemma either to reach an agreement with Mr Thomas and become responsible for the payments and rights which he claimed or accept the probability of losing the Exclusive Grasslands customers, with the consequent serious threat to the viability of the business. As has already been observed, whatever chance there may have been of an arrangement being reached between Mr Berry and Mr Thomas was effectively precluded by Mr Angus having successfully planted in Mr Berry's mind that Mr Thomas was properly to be regarded as an unsatisfactory customer and a bad debt. In any case, the dilemma would have been particularly acute for Mr Berry, whose specialty was marketing, and who was planning, as Mr Angus knew, to conduct that important side of the business himself.
I am satisfied that the necessary nexus has been established between the contravention of the Act and the applicant's execution of the agreement and the payment of monies under it.
The agreement contained the following exemption clause:
"It is expressly agreed and declared that the business and the chattels are sold without any warranties or conditions other than those specifically contained herein"In my opinion, this clause cannot operate so as to oust the effect of the Act, to affect the nexus between the contravention of the Act and the execution of the agreement and the payment of monies under it, or to deprive the applicant of its remedies under the Act.
The order that the agreement be declared void ab initio will operate against Mrs Angus as one of the parties to it, although she has not been found to have been involved in a contravention of the Act. However, she was content to leave the conduct of the negotiations in regard to the sale to her partner and co-owner of Tantallon, and she supported the defence of the applicant's claim, especially by her evidence as to the books of account. It would not, in my opinion, be proper to deny the applicant the relief to which it is entitled by reason of the conduct of Tantallon and Mr Angus.
It is not necessary, at least at the present time, to make the order adjusting the purchase price in respect of the office and irrigation pipes to which the parties were prepared to consent.
The Court orders and declares as follows:
Tantallon has, in trade or commerce, engaged in conduct that was misleading or deceptive in contravention of s.52(1) of the Act.
Mr Angus was involved in that contravention, within the meaning of the Act.
The agreement dated 8 August, 1983 between the applicant and the respondents is declared to have been void ab initio.
The cross-claim of the respondents is dismissed.
The costs of the applicant of and incidental to the application, including any reserved costs, are to be paid by Tantallon and by Mr Angus.
The costs of the applicant of and incidental to the cross-claim, including any reserved costs, are to be paid by Tantallon and by Mr and Mrs Angus.
No order is made in respect of the costs of Mrs Angus, who was represented by the same solicitor and counsel as the other respondents, bearing in mind what has been said as to her participation in the trial and the view which has been taken of her evidence.
7. The applicant should bring in short minutes of orders by 13 August, including such consequential orders as it submits should be made, whether relating to the taking of accounts or of any other steps.
8. The case will be listed on 20 August, when the parties will be heard in respect of these minutes. If they are able to agree upon the orders to be made, or upon some of them, it will be very much in their interests, as the trial has already been long and costly.
9. Liberty to apply is reserved generally.