| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : PALMBAY NOMINEES PTY LTD -v- FOWLER & ORS [2002] WADC 93 CORAM : MARTINO DCJ HEARD : 25-26 FEBRUARY 2002 DELIVERED : 23 MAY 2002 FILE NO/S : CIV 1845 of 2000 BETWEEN : PALMBAY NOMINEES PTY LTD (ACN 050 495 488) Plaintiff
AND
FREDERICK DEXTER FOWLER
PAULINE ERICA FOWLER
First Defendants
LORIMAR SOUTHGATE TRANSPORT PTY LTD (ACN 071 826 349)
Second Defendant
(BY ORIGINAL ACTION)
FREDERICK DEXTER FOWLER
PAULINE ERICA FOWLER
LORIMAR SOUTHGATE TRANSPORT PTY LTD (ACN 071 826 349)
Plaintiffs By Counterclaim
AND
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PALMBAY NOMINEES PTY LTD (ACN 050 495 488)
First Defendant By Counterclaim
ALEXANDER JAMES COUPER
Second Defendant By Counterclaim
(BY COUNTERCLAIM)
Catchwords: Trade practices - Misleading or deceptive conduct - Purchase of business - Estoppel - Judgment
Legislation: Trade Practices Act 1974, s 52, s 75B and s 82
Result: Judgment for defendants/plaintiffs by counterclaim
Representation:
Original Action
Counsel:
Plaintiff : Mr G K Paull
First Defendants : Mr D A Lenhoff
Second Defendant : Mr D A Lenhoff
Solicitors:
Plaintiff : Butcher Paull & Calder
First Defendants : Lenhoff & Co
Second Defendant : Lenhoff & Co
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Counterclaim
Counsel:
Plaintiffs By Counterclaim : Mr D A Lenhoff
First Defendant By Counterclaim : Mr G K Paull
Second Defendant By Counterclaim : Mr G K Paull
Solicitors:
Plaintiffs By Counterclaim : Lenhoff & Co
First Defendant By Counterclaim : Butcher Paull & Calder
Second Defendant By Counterclaim : Butcher Paull & Calder
Case(s) referred to in judgment(s):
Gould & Anor v Vaggelas & Ors (1985) 157 CLR 215
Wardley Australia Ltd & Anor v State of Western Australia (1992) 175 CLR 514
Case(s) also cited:
Angel v National Australia Bank Ltd [2001] FCA 1053
Arnold & Ors v National Westminster Bank plc [1988] 3 All ER 977
Arnold & Ors v National Westminster Bank plc [1990] 1 All ER 529
Blair & Ors v Curran & Ors (1939) 62 CLR 464
Bradford House Pty Ltd v Leroy Fashion Group Ltd [1983] ATPR 40-387
Carl-Zeiss-Stiftung v Rayner & Keeler Ltd & Ors [1966] 2 All ER 536
Conagra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302
Concrete Constructions (NSW) Pty Limited v Nelson (1990) 169 CLR 594
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Fidelitas Shipping Co Ltd v V/O Exportchleb [1965] 2 All ER 4
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
Henderson v Henderson [1843-60] All ER 378
Henville & Anor v Walker & Anor [2001] HCA 52
Howlett v Tarte (1861) 10 CBNS 813
Hume & Ors v Munro & Ors 42 SR (NSW) 218
Isaacs & Sons v Salbstein & Anor [1916] 2 KB 139
Jackson v Goldsmith (1950) 81 CLR 446
Kosanovic v Sarapuu [1962] VR 321 (FC)
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Kizbeau Pty Limited & Ors v WG & B Pty Limited & Anor (1995) 184 CLR 281
Linprint Pty Ltd v Hexham Textiles Pty Ltd (1991) 23 NSWLR 508
Lockyer v Ferryman (1877) 2 App Cas 519
Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23
New Brunswick Railway Co v British & French Trust Corporation (1939) AC1
Parkdale Custom Built Furniture Proprietary Limited v Puxu Pty Ltd (1982) 149 CLR 191
Port of Melbourne Authority v Anshun Pty Ltd (1981) 36 ALR 3
RAIA Insurance Brokers Ltd v FAI General Insurance Co Ltd (1993) 112 ALR 511
Re Ku-Ring-Gai Co-Operative Building Society (No 12) (1978) 22 ALR 621
Re South American & Mexican Company ex parte Bank of England [1895] 1 Ch 37
Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477
Rogers v Legal Services Commission of South Australia (1995) 64 SASR 572
Sutton v AJ Thompson Pty Ltd (in liq) & Ors (1987) 73 ALR 233
Taco Co of Australia Inc & Anor v Taco Bell Pty Ltd & Ors (1982) 42 ALR 177
Tedeschi v Legal Services Commissioner (1997) 43 NSWLR 20
Thoday v Thoday [1964] 1 All ER 341
Tobacco Institute of Australia Ltd v Aust Fed of Consumer Organisations Inc (1992) 38 FCR 47
Yat Tung Investments Co Ltd v Dao Heng Bank Ltd (1975) AC 581
Yorke & Anor v Lucas (1985) 158 CLR 661
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MARTINO DCJ:
Introduction 1 By an agreement dated 16 June 1999 the plaintiff sold to the defendants a coach and charter business carried on by the plaintiff under the business name Shark Bay Coaches and Charters ("the business"). The price payable by the defendants was $100,000, payable by one payment of $50,000 and the balance by 24 monthly payments of $2,083.33, commencing with the first payment on 29 July 1999. The price was for goodwill. No plant, equipment or stock was included in the sale. Under a separate contract the defendants agreed to purchase from the plaintiff a bus for $17,500. The defendants made the initial payment of $50,000 and made nine of the monthly payments of $2,083.33 but have not made any further payments. The plaintiff claims that the defendants have repudiated the agreement and that it has accepted that repudiation. It claims the sum of $31,250.03, being the balance of instalments under the contract, as damages for repudiation. 2 The defendants deny that they have repudiated the agreement. They contend that prior to the defendants entering into the agreement misrepresentations were made to them by the plaintiff through the second defendant by counterclaim ("Mr Couper"). Mr Couper controls the plaintiff company. The defendants claim against the plaintiff damages for misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act. Against Mr Couper they claim damages on the ground that he was involved in the plaintiff's contravention of the Trade Practices Act. 3 The plaintiff denies that it has engaged in any misleading or deceptive conduct and contends that issue estoppel prevents the defendants pursuing the issues raised in their defence and counterclaim because in February 2000 it commenced an action in the Northam Local Court for the instalments due in December 1999 and January 2000. No defence was filed to that summons and the payments the subject of the action were made without reference to the claims made by the defendants in this action.
The business 4 In 1990 Mr Couper lived in Denham. He was operating a small tour business and also had a small number of rental properties. In the same
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year Mr Couper decided to acquire an interest in Prime Coast Holdings Pty Ltd. Prime Coast Holdings operated a number of tourism related businesses, including a tour business and a passenger transport business. 5 Mr Couper formed the plaintiff to acquire an interest in Prime Coast Holdings and became a director of Prime Coast Holdings. In 1991 Mr Couper purchased the whole of Prime Coast Holdings and so acquired Denham Seaside Tours, Shark Bay Real Estate and Shark Bay Accommodation Service. 6 In 1999 the plaintiff operated a passenger transport business in Shark Bay, providing a regular passenger service between Monkey Mia, Denham and the Overlander Roadhouse. The passenger service provided a connecting service to passengers of Greyhound Pioneer Australia Ltd ("Greyhound"). The plaintiff held a Regular Passenger Transport Licence under which it operated the passenger service. That licence allowed the plaintiff to charge individual passengers. The plaintiff provided the service as a contractor to Greyhound. Passengers purchased tickets from Greyhound for the whole of their journey. Greyhound paid the plaintiff for passengers carried by the plaintiff on its service. The business depended on the operation of a passenger transport service by Greyhound and the payment by Greyhound of the moneys due for the transport of passengers between Monkey Mia, Denham and the Overlander Roadhouse. 7 The plaintiff also operated a tour business in the region. The tour business operated as a charter service and did not require a Regular Passenger Transport Licence. 8 Mr Mark Southgate controls the second defendant. He commenced employment with the plaintiff as a casual driver in August 1998. In November 1998 the manager of the plaintiff's business resigned and commenced his own tour business. Mr Couper offered Mr Southgate full time employment with the plaintiff. Mr Southgate accepted the offer. As a full time employee Mr Southgate drove a bus from Monkey Mia to the Overlander Roadhouse and return six times a week and informed Mr Couper of any maintenance that was required. 9 The departure of the plaintiff's manager and his operation of a competitive tour business resulted in the plaintiff losing its tour customers. Mr Couper sent to Mr Southgate flyers advertising the plaintiff's tour business. Mr Southgate distributed the flyers to passengers on the regular passenger service but had limited success in securing
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customers for the tour business. If he did secure customers for a tour he would engage the first defendants ("Mr and Mrs Fowler") to take the tours.
The plaintiff's dealings with Greyhound 10 The plaintiff commenced carrying passengers for Greyhound in late 1992 or early 1993. There was no written contract between the two companies. An arrangement was made between Greyhound's operations manager in Perth and Mr Couper under which the rate payable per passenger by Greyhound was fixed and Greyhound agreed to pay the plaintiff within 30 days. 11 Initially Greyhound paid the plaintiff regularly, as long as Mr Couper chased up Greyhound for payment, but Greyhound's payments became less regular and at times Mr Couper informed Greyhound that if payment were not made the service would cease. In 1997 payments were being made up to 90 days after they were due. Mr Couper informed Greyhound that as the payments were so late the plaintiff would need to increase its rates. After negotiations an arrangement was made that the plaintiff would not increase its rates but Greyhound's payments procedure would be changed and Greyhound would draw a cheque every Wednesday for the previous week's invoices. 12 Mr Couper's evidence was that Greyhound did not keep this commitment, but the payment of accounts did improve: "PAULL, MR: How did your business progress and your relationship with Greyhound progress from then on?---They picked up on their payments from that date. They were paying me - they picked up on what they owed me. They back paid the money that was outstanding. I always had good relations with the management here in Perth. They helped me a great deal; not that I was visiting them a tremendous amount, it was the fact that I rang them and I sent them faxes saying, "You are due to pay me. You are due to pay me." I never expected I would be paid in 10 days but I expected to at least get it under 30 days, which we did achieve." (T133-134) 13 However payments by Greyhound worsened in 1999. The evidence of Mr Max Simpson, Greyhound's Road Services Manager in Perth, was that at the beginning of 1999 Greyhound was making payments to its suppliers between 14 to 30 days of receipt of an account but that payment
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started to stretch out to around 90 days by the middle of the year. I accept Mr Simpson's evidence. The plaintiff's financial records confirm that payment of the plaintiff's accounts by Greyhound was worsening. The following table is taken from Exhibit J, a document prepared by Mr Couper from the plaintiff's financial records to show the payment of accounts by Greyhound.
MONTH DEBT PERIOD January 1999 $ 5,315 Two weeks February 1999 $ 2,926 One week March 1999 $ 7,087 Two weeks April 1999 $11,520 Three weeks May 1999 $14,688 Four weeks June 1999 $21,777 $7,381 - 30 days, balance current
14 On 4 May 1999 Mr Couper sent a fax to Greyhound for Mr Simpson's attention. The fax was in the following terms: "We have just spoken with Brisbane Accounts Payable and have been advised that no funds are being sent or transferred to us today. This seems a marked contrast from the concerned response we received from Garth Anderson last Friday April 30th. In that conversation he showed a lot of concern and advised that action would be taken on Tuesday - today. Our present major concern is our Manager in Shark Bay who has not been paid for some time. It is likely that he could refuse to drive the coach in the near future. The last payment we received was on April 19th now over two weeks ago. That payment was for two invoices dated March 29th and April 5th and were due for payment on April 8th and 15th respectively. After faxing our invoice today to the Terminal the total outstanding is $15,580.50 I do hope that you can assist us with this above problem." 15 Mr Couper's evidence was that the contents of this fax was the style he used to get payment from Greyhound and that there was no truth to the statement that the plaintiff needed payment from Greyhound to pay its staff (T162). However that is what happened. On 10 June 1999 a cheque
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from the plaintiff payable to the second defendant for $2,235 was not honoured. That cheque was in payment of moneys due for Mr Southgate's services to the plaintiff. The reason that the cheque was not honoured was that Greyhound had not paid money that it owed to the plaintiff (T161). I do not accept Mr Couper's evidence that his statement to Greyhound in the fax dated 4 May 1999 that he was concerned about paying the plaintiff's manager was not true. I find that the statement was true and that at least by May 1999 the late payment of accounts by Greyhound was causing financial difficulty to the plaintiff and that Mr Couper was aware of that.
Negotiations for the sale of the business 16 In 1996 Mr Couper investigated selling the business. He spoke to a business broker in South Perth. The fact that the plaintiff had no written contract with Greyhound was an impediment to selling the business. The plaintiff did not find a purchaser. Mr Couper continued his efforts to sell the business. He put advertisements in the newspaper and received some feedback that the absence of a contract with Greyhound made the business less attractive to prospective purchasers. 17 At the end of 1998 Mr Couper decided to renew his efforts to sell the business. He spoke to a number of business brokers. He found only two who he felt were "responsive" to his enquiries (T142). He negotiated with one of them. That was Goodwin, Mitchell, O'Hehir and Associates ("Goodwin Mitchell"). Mr Couper dealt with Mr Batista of that firm. Goodwin Mitchell advertised the business and "got some leads. [Mr Couper] had to answer a lot of questions" (T143). 18 In March 1999 Mr Couper informed Mr Southgate that he was interested in selling the business and suggested that Mr Southgate might be interested in purchasing it. Several weeks later Mr Southgate approached Mr and Mrs Fowler and suggested forming a partnership to purchase the business. Mr and Mrs Fowler were interested. Mr Southgate and Mr and Mrs Fowler commenced discussions with Mr Couper about the sale of the business. 19 On 9 May 1999 Mr Couper faxed to Mr and Mrs Fowler material about the financial performance of the plaintiff. In that fax Mr Couper wrote: "Attached are details that we provide our accountant to produce our tax returns for the above Company."
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20 The attached sheet was headed "Shark Bay Topday Tours and Charter Ingoings and Outgoings 1997-1998".
21 It showed figures for 1996-1997 as well as for 1997-1998 including the following:
"Ingoings1996-19971997-1998 Greyhound Pioneer $128,200 $184,893 Tours and Charter $ 18,565 $ 37,031"
22 On 15 May 1999 Mr Couper sent a fax to Mr Southgate with projected figures income and expenses for the business. In that fax Mr Couper wrote: 23 The figures referred to in that fax were taken from a sheet which was faxed to Mr and Mrs Fowler at the same time. That sheet was headed "Shark Bay Coaches - Estimated Ingoings and Outgoings March '99 to February '00". It contained the following:
"IngoingsPer AnnumTotals Greyhound Pioneer @ $3,518.00 p/w av. $182,936 $182,936 Outgoings … $ 55,390 Difference $127,546 Casual Wages $ 23,660 $103,886"
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24 On 1 March 1999 the services provided by the plaintiff to Greyhound increased. Mr Southgate gave the following evidence about the increase:
"During or about that time did the frequency of the service offered by the plaintiff for Greyhound increase from six to 14 a week?---That's correct. I believe it to be March 1 99 it increased from six trips to 14 a week. That meant that the number of trips more than doubled, did it not?---That's correct. Did that have a commensurate impact on the number of passengers carried?---Not immediately I don't believe, no. Did the number of passengers carried because of the increased frequency of trips increase?---It did over a period of time, yes." (T16) 25 In May 1999 Mr and Mrs Fowler sought advice from their accountant Mr Brian Migdale on the purchase of the business. They sent by fax to Mr Migdale the financial information that had been provided to them by Mr Couper and told him that the vendor was seeking $100,000 for goodwill of the business. On 19 May 1999 Mr Migdale spoke by telephone to Mrs Fowler. He advised Mrs Fowler that in his opinion the goodwill of the business was not worth $100,000 and that in his opinion the goodwill was worth $60,000. Mr and Mrs Fowler informed Mr Southgate of this advice. The defendants offered to purchase the business on the basis that the value of its goodwill was $60,000 with finance for the purchase being provided by the vendor plaintiff. Mr Couper did not accept that offer. On 3 June 1999 Mr Couper sent a fax to Mr Southgate that contained the following:
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discussing the lowest figure was $126,600 for goodwill plus stock and equipment. This I have in writing. Regarding vendor terms on the total amount (without a lump-sum payment) I was advised that this usually only occurs with family transactions - relatives dealing with relatives. Your offer yesterday we regret we cannot accept. When we started talking I understood that we both agreed that good will was the net profit for one year. The figure $103,886 is the goodwill figure for this small owner operated business that we want to sell. We are still willing to accept that figure from you, however, we must have a guarantee that we will receive all the money. I must also insure that if I am not about in a few years time that my wife can access the money if she so requires it. By obtaining a reasonable size lump-sum it does mean that the debt could be factored off if necessary." 26 Mr Southgate's statements in that fax that he had received from two business brokers valuations for the goodwill of the business and that the lowest valuation was $126,600 were not true. Mr Couper had approached Goodwin Mitchell in late 1998 or early 1999. When the defendants were expressing interest in purchasing the business Mr Couper decided that it would be prudent to ensure that Goodwin Mitchell had a record that a sale to Mr Southgate would not be a sale to a client introduced by that firm. It was from Mr Couper's experience in the real estate business that he knew he should ensure that this fact was recorded. Mr Southgate met with Mr Batista on 2 June 1999. He provided to Mr Batista financial information about the business. Mr Couper signed a document appointing Goodwin Mitchell as agents to sell the business. The appointment was endorsed "excluding Mark Southgate". The selling price specified on the appointment was $159,000 of which $32,400 was for plant and $126,600 was for goodwill. 27 In his fax to Mr Southgate dated 3 June 1999 Mr Couper wrote that he had in writing that two experienced business brokers valued the goodwill of the business at not less than $126,600. His evidence was that he had only one figure in writing and that was the price in the appointment of agent signed by him on 2 June 1999. This was the "valuation" in writing to which he was referring in his fax dated 3 June 1999. Mr Couper agreed that it was not a valuation. The other broker to whom he referred in the fax was one in Newcastle Street he saw when looking for brokers that were interested in selling the business (T174-176).
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28 Mr Couper's evidence in chief as to the source of the figure of $126,600 was:
"When I spoke with [the brokers] I said, 'You're the people who know how to value things or appraise them,' valuers, 'Here are the figures, you tell me,' and that's the figures that they came up with." (T143) 29 When asked in cross-examination if Mr Batista would value the goodwill of the business at $126,600 Mr Couper's evidence was that he did not know. Neither Mr Batista nor any other business broker with whom Mr Couper had dealings was called to give evidence. The plaintiff provided no explanation for the failure to call them. I conclude that their evidence would not have assisted the plaintiff. I also conclude that the figure of $126,600 for goodwill was a figure for which Mr Batista was prepared to accept an appointment to act as agent for the sale of the business. It was not a valuation. 30 Mr Southgate showed Mr Couper's fax of 3 June 1999 to Mr and Mrs Fowler. His evidence was: "Well, he had it valued and he stated this in writing and believing that he was an honest man, we believed we were getting a bargain, to get it at the 100,000. … What did the receipt of this letter do as far as the misgivings raised by Mr Migdale was concerned? How did that impact on those misgivings?---Well, we knew Mr Migdale was an accountant but Mr Couper stated that two business brokers had valued it higher. We believed that they were two different lines of business and with Mr Couper's guarantees and his ingoings and outgoings showing that the business earns in excess of 100,000 net per annum, we believed that Mr Couper possibly could be right and the business could be worth that much money." (T25) 31 I accept that evidence. 32 Mr Southgate's evidence was that he asked to see the valuations and that Mr Couper said that he would forward them through the post, but that he did not receive them. Mr Couper's evidence was that he did not recall being asked to provide a copy of the appointment of agent and that if he
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had been asked by Mr Southgate or Mr and Mrs Fowler to provide it he would have done so. I accept the evidence of Mr Southgate that he did ask to see the valuations referred to in Mr Couper's fax dated 3 June 1999 and that Mr Couper said that he would provide them. I find it understandable that Mr Southgate would request to see the valuations referred to in the fax. Mr Couper could not provide them because he did not have them. Mr Couper either had to admit that he had made a false statement in the fax or say he would provide them and hope that the matter was not pursued. I do not find relevant Mr Couper's evidence that the defendants did not ask for a copy of the appointment of agent. The appointment of agent would have been of no interest to them. Valuations would have been. 33 Mrs Fowler's evidence was that when Mr Southgate showed her the fax from Mr Couper dated 3 June 1999 she believed Mr Couper: "As I said, we were trying to negotiate around about $60,000 and then once we received this we thought, well, he has got it down there in writing, we have got no reason to disbelieve him, if he has got these assessments he must be right. And if you had to acquire the business for $100,000?---If we acquired it for 100,000 and it was worth 126, well, the thinking was that we might have been able to sell it if things didn't work out and still get our money back." 34 I accept the evidence of Mr Southgate and Mrs Fowler that when they received Mr Couper's fax dated 3 June 1999 they believed that Mr Couper had two written valuations valuing the goodwill of the business and that the lowest of the valuations was $126,600. I conclude that this mistaken belief led the defendants to agree to purchase the business for the price of $100,000. 35 On 10 June 1999 the plaintiff's cheque for $2,235 payable to the second defendant was not honoured. As I have related earlier the reason was that Greyhound had not paid the plaintiff. Mr Southgate approached Mr Couper about the cheque. Mr Couper said that he had just overrun his cheque account at the time. Mr Couper did not tell Mr Southgate that the reason was that the plaintiff had not received payment from Greyhound. Mr Southgate's evidence was that prior to the purchase of the business he did not know that the plaintiff had any problem in receiving payment from Greyhound of monies owed to it by Greyhound and that if he had been
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aware of the problem he would not have purchased the business. I accept that evidence. 36 Mr Southgate's evidence was that during their negotiations Mr Couper said to him that Greyhound was "a sound, steady, large public company, that it had been operating for many years" (T16). Mr Couper agreed that in his negotiations with the defendants leading up to the sale of the business he conveyed to the defendants that Greyhound was a sound public company (T160). 37 Mr Southgate passed on this representation to Mr and Mrs Fowler. Mrs Fowler's evidence was that the decision to purchase the business was based on the financial figures provided to them by Mr Couper, his fax dated 3 June 1999 that he had two valuations valuing the goodwill of the business of which the lowest valuation was $126,600 and the fact that Mr Couper said that Greyhound was a steady company. I accept that evidence.
The purchase of the business 38 A written agreement to purchase the business was prepared by lawyers acting on behalf of the defendants. During the negotiations the parties had agreed a purchase price of approximately $103,000. However the written agreement provided for a purchase price of $100,000. When Mr Couper saw the figure of $100,000 he "wasn't very happy" (T149) but decided to execute the agreement. The settlement date specified in the agreement was 29 June 1999. Settlement took place and the defendants paid $50,000 to the plaintiff in accordance with the agreement. Mr Couper travelled to Denham at around this time. The defendants paid to him $17,500 for the purchase of a bus.
The defendants take over the business 39 The defendants commenced operating the business on 29 June 1999. They sent weekly invoices to Greyhound. Greyhound did not pay on those invoices. On 12 August 1999 Mrs Fowler wrote to Mr Simpson of Greyhound asking him to address several matters. The first of those matters was payment: "Payment. We have been operating the services for 6 weeks now and we have not been paid. On 10 August the total of the invoices sent was $22,573.50. We cannot keep operating on the
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credit and goodwill of the Denham businesses so we urgently need to be paid." 40 At that time the defendants still had some money left from their borrowings to purchase the business but that money was about to run out. They had to repay their borrowings and pay suppliers. They were in arrears in their fuel account. The letter of 12 August 1999 did not result in Greyhound paying the moneys it owed the defendants. On 20 August 1999 Mrs Fowler wrote to Mr Simpson in the following terms: "It has become imperative that we get paid. We can no longer carry on without payment. If payment has not been put into our bank account by 12 midnight on Monday 23 August then we will cease all services into and out of Shark Bay. As from Monday 16 August invoices presented to you have totalled $25,770." 41 On 24 August 1999 Mrs Fowler wrote to Mr Garth Anderson in Greyhound's Brisbane office. She understood that Mr Anderson was in charge of payment of accounts. Mrs Fowler informed Mr Anderson that the defendants had sent invoices totalling $28,978.50 and that they would not be able to carry on unless some payment was received in the next few days. 42 By 30 August 1999 Greyhound had made one payment of $4,389 to the defendants but still owed $24,589.50 to the defendants. On that day Mrs Fowler wrote to Mr Simpson and Mr Southgate wrote to Nadine of Greyhound's finance department seeking payment and pointing out the difficulties that they were facing as a result of Greyhound's failure to pay their accounts. Further letters demanding payment were sent to Greyhound on 9 September and 14 September 1999. By letters dated 15 September 1999 the defendants informed the Department of Transport that from 16 September they would suspend their regular passenger transport service between Denham, Monkey Mia and the Overlander Roadhouse as a result of Greyhound's failure to pay their accounts. 43 Greyhound then paid $15,000 to the defendants and agreed to pay $4,000 every Friday commencing on 1 October 1999. On 11 October 1999 Mrs Fowler wrote to Greyhound pointing out that the first payment was not received until 5 October 1999 and the payment due on 8 October 1999 had not been received.
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44 In September or October 1999 Mr Southgate noticed that Greyhound's shares had dropped dramatically and eventually it was suspended on the stock exchange.
45 In November 1999 the defendants heard from drivers employed by Greyhound that Greyhound was considering no longer using the defendants' services but instead running their buses into Denham. If that had occurred the defendants would have had no business. The business for which they agreed to pay $100,000 would be worth nothing. They made approaches to Greyhound with a view to ensuring that the Greyhound did not cease using their services. Mrs Fowler wrote to Mr Couper complaining that the business they had acquired had no goodwill and demanding repayment of the moneys already paid for the purchase of the business. In the event Greyhound did not run its own buses into Denham. 46 Greyhound made further payments to the defendants but continued to be behind in those payments. As a result the defendants fell behind in their payments to the plaintiff. On 4 January 2000 Mrs Fowler wrote to Mr Couper informing him that the monthly payment for December would be delayed for a few days, that Greyhound had assured the defendants that they would receive payment that week and that as soon as that happened the defendants would pay the plaintiff. In that letter Mrs Fowler apologised for the delay in payment and expressed the hope that it would not occur again. In cross-examination counsel for the plaintiff asked Mrs Fowler why in that letter she did not complain to Mr Couper that the problems that the defendants were experiencing were the result of his misrepresentations. Mrs Fowler's evidence was that she was trying to get on with the business doing the best they could and hoping that the business would improve. I accept that evidence. The defendants had paid money and incurred financial commitments to the plaintiff on purchasing the business. They were also seeking to earn income from the operation of that business. I find nothing surprising about the fact that their highest priority was to ensure that the business remained viable. 47 Mr Couper replied to Mrs Fowler's fax of 4 January 2000 by a fax dated 6 January 2000. In that fax he wrote: "We do understand your problems with Greyhound Pioneer Pty Ltd for as you aware we experienced these similar delays for many years."
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48 Neither Mr Couper nor Mrs Fowler were asked about this sentence during the trial. Mr Couper did not give evidence that he had informed Mrs Fowler before the sale of the business that the plaintiff had experienced delays in receiving payment from Greyhound for many years.
49 I do not conclude from Mr Couper's fax of 6 January 2000 that Mrs Fowler knew before the defendants purchased the business that the plaintiff had experienced delays in payment from Greyhound.
The plaintiff's action against Mr and Mrs Fowler 50 On 31 January 2000 the plaintiff issued a summons in the Local Court at Northam against Mr and Mrs Fowler claiming $4,166.66. The particulars of claim were: "Money owing as per agreement dated 16-6-99 for purchase of business." 51 That summons was for the instalments due in December 1999 and January 2000. The plaintiff did not name the second defendant to this action as a defendant to the Local Court action. 52 Mr and Mrs Fowler did not file notice of intention to defend the Local Court action. Mr Southgate contacted Mr Couper and asked Mr Couper to withdraw the summons. Mr Couper refused. The defendants paid the monies claimed under the summons. 53 The plaintiff did not enter judgment against Mr and Mrs Fowler. The plaintiff's pleas of issue estoppel and res judicata are not made out.
The defendants ceased payments to the plaintiff 54 The defendants did not make a payment to the plaintiff in April 2000. On 3 May 2000 the plaintiff wrote to Mr and Mrs Fowler requiring payment. 55 On 5 May 2000 the defendants wrote to Mr Couper as follows:
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"5.5.2000 Mr S Couper Re - Monthly Repayments Dear Mr Couper Thank you for your letter dated 3.5.2000. After taking legal advice, we now advise you there will be no more payments. We feel at the time of the sale you where aware that Greyhound were in serious financial trouble. 3 months after the sale, Greyhounds shares were suspended on the stock market and have been ever since, making the value of this business worthless. We also point out that the $100,000 net profit you claim the business made in 97 & 98 is not correct. After 10 months trading we believe $50,000 would be the most this business could make, since the business sold on the value of one years net profit, we now believe we are entitled to some sort of refund. So to prevent any legal action against you we would suggest you consider the above and make an offer to settle this matter in the next week. Regards Shark Bay Coaches" 56 On 8 June 2000 the defendant issued a Local Court summons against Greyhound claiming $23,756 as the balance outstanding for passenger transport services between 5 July 1999 and 7 June 2000. The defendants obtained default judgment against Greyhound but the monies owed were not paid. Greyhound was placed into receivership that month.
The financial performance of the business for the year ended 30 June 2000 57 In the year ended 30 June 2000 the business received sales income of $164,976.19. This was based on invoices rendered by the defendants to Greyhound. It included approximately $27,000 which Greyhound had not paid and which was subsequently written off. 58 The business incurred expenses of $157,341.25 and made a profit of $7,634.04. The expenses included management fees of $40,036.75 paid to the second defendant and $14,132.11 paid to Mr and Mrs Fowler for services provided to the business including the driving of buses.
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The financial performance of the business under the plaintiff
59 In the year ended 30 June 1996 the business received total income of $216,202 of which $180,341 was income from Greyhound. Its expenses were $196,120 resulting in an operating profit of $20,082. 60 For the following year the total income was $189,457. Income from Greyhound was $150,038. Total expenses were $168,611 and the operating profit $20,846. 61 In the year ended 30 June 1998 the total income was $171,791 of which $153,080 was from Greyhound. Total expenses were $181,464 resulting in a loss of $9,673. 62 For the final year that the plaintiff operated the business the total income was $159,914 of which Greyhound's income was $158,513. Total expenses were $162,072 and the operating loss $2,158.
Findings as to representations 63 The defendants rely upon representations of three types: Representations as to the financial performance of the business, representations as to Greyhound's financial position and a representation that the plaintiff had received valuations from two business brokers which valued the business at the lowest figure of $126,000. 64 There were variations between the figures provided by Mr Couper to the defendants and the financial figures prepared by the plaintiff's accountants. For the year ended 30 June 1999 the figures provided by Mr Couper were projected as were the figures provided for the period from March 1999 to February 2000. 65 The figures provided by Mr Couper were based on receipts rather than invoices. The plaintiff's accounts were based on invoices to Greyhound. Sometimes Mr Couper's figures showed the business as performing more favourably than the accounts, sometimes less favourably. 66 The defendant called expert evidence, James Ronald Thompson, a business valuer. He noted differences between the two sets of figures but said he had not examined the source documents and so was unable to comment why the figures were so different. No analysis of the reasons for these variations was provided as part of the defendants case. The
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defendants have not established that the financial information provided by the plaintiff was misleading or deceptive. 67 The defendants have established that Greyhound was irregular in its payments to the plaintiff and that the defendants were not aware of that. However the misrepresentation alleged is that Greyhound was in a sound financial position. I do not have evidence upon which I can consider that Greyhound was not in a sound financial position at the time of the representations. 68 There may be many reasons why a company may be a slow payer of its debts. It may have a policy of not paying debts until as late as possible. The fact that Greyhound's shares fell and were suspended in September or October 1999 does not mean that it was in a poor financial position in May or June 1999. Nor does the fact that Greyhound was placed in receivership in June 2000. Mr Maxwell Simpson, who was employed by Greyhound as a road services manager, gave evidence about lengthening delays in payment of accounts by Greyhound, "rumours and innuendo" about the company and newspaper reports. Mr Simpson did not have any detailed knowledge of the financial affairs of Greyhound and I could not conclude from his evidence that Greyhound was not financially sound at the time of the purchase of the business by the defendants. The defendants have not established that the plaintiff's representations as to Greyhound's financial position were misleading or deceptive. 69 The representation made by Mr Couper in his fax dated 3 June 1999 that he had in writing two valuations of the business the lowest of which was $126,600 was made by Mr Couper on behalf of the plaintiff. It was untrue, as Mr Couper knew. It was misleading or deceptive conduct by the plaintiff in contravention of s 52 of the Trades Practices Act 1924. Mr Couper, as author of the fax, was knowingly concerned in that misleading or deceptive conduct and was involved in that contravention: Section 75B and s 82 of the Trade Practices Act 1924. 70 Causation in s 82 of the Trade Practices Act 1974 is to be determined in a practical or common-sense way: Wardley Australia Ltd & Anor v State of Western Australia (1992) 175 CLR 514. If a material representation is materially likely to induce the person to whom it is made to enter into the contract and the person enters into the contract a fair inference arises that the representation operated as an inducement: Gould & Anor v Vaggelas & Ors (1985) 157 CLR 215.
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71 The representation that he had received the valuations was made as part of negotiations for the sale of the business. It was made to influence the defendants. The defendants accepted the truth of the representation. I find that it induced the defendants to purchase the business.
Evidence as to value of the business 72 Mr Thompson gave evidence as to the value of the business. In his opinion the return on investment method in the most appropriate method of determining the value of a small business such as the business the subject of this action. The value of a business using the return on investment netted is calculated using the following formula: Price = Net profit before tax x 100
ROI% 73 The ROI% (return on investment percentage) varies according to factors such as the desirability and security of the type of business being considered. 74 In Mr Thompson's opinion this method is preferable to a valuation based on one year's net profit. That method - the asset value - going concern method is no longer in general use. It often over values businesses. I accept that the return on investment method is appropriate. 75 Mr Thompson gave two valuations. In Mr Thompson's opinion the appropriate ROI% was 80 per cent if Greyhound was not known to be financially insecure and 120 per cent if Greyhound was known to be financially insecure. If Greyhound was in financial difficulties at the time of sale he valued the goodwill of the business at $7,000. If Greyhound was not in financial difficulties Mr Thompson valued the goodwill at $35,000. I accept Mr Thompson's evidence. For reasons I have already expressed I am not satisfied that Greyhound was in financial difficulties at the time of sale. I conclude therefore the value of the business at the time of sale was $35,000. Conclusions as to damages 76 Induced by the misleading and deceptive conduct of the plaintiff in representing that Mr Couper had received two valuations in writing the lowest of which was $126,600 the defendants purchased the business. The price they agreed to pay was $100,000, of which they have paid $68,750.
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77 The appropriate measure of damages is the difference between the sum paid and the value of the business, namely $33,750. The defendants are also entitled to recover $577 being the stamp duty paid by them less the stamp duty payable on the true value of the business. The total of their loss is $34,327.
78 Interest on that sum at the rate of 6 per cent per annum from 29 June 1999 is $5,976. 79 Mr Couper was involved in the plaintiff's misleading and deceptive conduct and is also liable in damages to the defendants. 80 For these reasons the plaintiff's claim against the defendants does not succeed. The defendants are entitled to damages against the plaintiff and Mr Couper in the sum of $40,303.
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