Palmbay Nominees Pty Ltd v Fowler - [2003] WASCA 217

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE FULL COURT (WA)

CITATION: PALMBAY NOMINEES PTY LTD & ANOR -v- FREDERICK DEXTER FOWLER & ANOR [2003] WASCA 217

CORAM: MALCOLM CJ
MURRAY J
WHEELER J

HEARD: 10 MARCH 2003

DELIVERED : 18 SEPTEMBER 2003

FILE NO/S: FUL 96 of 2002

BETWEEN: PALMBAY NOMINEES PTY LTD (ACN 050 495 488)
First Appellant
ALEXANDER JAMES COUPER
Second Appellant
AND
FREDERICK DEXTER FOWLER
First Respondent
LORIMAR SOUTHGATE TRANSPORT PTY LTD (ACN 071 826 349)
Second Respondent

Catchwords:

Breach of contract - Appeal from District Court decision - Issue estoppel and res judicata - Whether the evidence of the judgment raised an estoppel which prevented the respondents from seeking to void liability for the payment of any further instalments on the basis of facts subsequently discovered which entitled them to void the contract and/or claim damages - Payment of monthly instalments did not constitute an affirmation of the agreement so as to preclude the right of the respondents to rescind the contract and/or claim damages for misleading and deceptive conduct

Legislation:

Fair Trading Act 1987 (WA), s 9

Local Court Act 1904, s 34(2)(b)
Supreme Court Act 1935 (WA), s 32

Trade Practices Act 1974 (Cth), s 51A, s 52

Result:

Appeal dismissed

Category: B

Representation:

Counsel:

First Appellant               :     Mr C P Shanahan
Second Appellant          :     Mr C P Shanahan
First Respondent           :     Mr D A Lenhoff
Second Respondent      :     Mr D A Lenhoff

Solicitors:

First Appellant               :     Butcher Paull & Calder
Second Appellant          :     Butcher Paull & Calder
First Respondent           :     Lenhoff & Co
Second Respondent      :     Lenhoff & Co

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

Arnold v National Westminster Bank plc [1990] 1 All ER 529
Baines v State Bank of New South Wales (1985) 2 NSWLR 729
Blair & Perpetual Trustee Co Ltd v Curran (1939) 62 CLR 464
Blair v Curran (1939) 62 CLR 454
Carl Zeiss Stiftung v Rayner & Keeler Ltd [1966] 2 All ER 536
Cooke v Rickman [1911] 2 KB 1125
Gould v Vaggelas (1985) 157 CLR 215
Greater Wollongong City Council v Cowan (1955) 93 CLR 435
Humphries v Humphries [1910] 2 KB 531
Isaacs & Sons v Salbstein [1916] 2 KB 139
Jackson v Goldsmith (1950) 81 CLR 446
Kasnovic v Sarapuu [1962] VR 321
Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993
Linprint v Hexham Textiles (1991) 23 NSWLR 508
Lowell v Baldwin Ltd (1953) 1 All ER 634
MacDonald Estate v Martin (1990) 77 DLR (4th) 249
New Brunswick Railway Co v British and French Trust Corporation [1939] AC 1
Orr v Holmes (1948) 76 CLR 632
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
Re South American and Mexican Co; Ex parte Bank of England [1895] 1 Ch 37
SCF Finance Co Ltd v Masri (No 3) [1987] QB 1028
Spens v Inland Revenue Commissioners [1970] 1 WLR 1173
Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332
Tedeschi v Legal Services Commission (1997) 43 NSWLR 20
Unioil International Pty Ltd v Deloitte Touche Tomatsu (a firm) (1997) 17 WAR 98
Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514

Case(s) also cited:

Brewer v Brewer (1953) 88 CLR 1
Commonwealth Bank of Australia v Quade (1991) 178 CLR 134
Coopers Brewery Ltd v Panfida Foods Ltd (1992) 26 NSWLR 738
Henderson v Henderson [1843-60] All ER Rep 378
Hoystead v Commissioner of Taxation [1926] AC 155

MALCOLM CJ: This is an appeal from a judgment in the District Court on 23 May 2002 by which the learned trial Judge dismissed a claim by the appellants for damages for breach of a contract. The trial Judge also gave judgment for the respondents on their counterclaim against the appellants for damages in the sum of $40,303.

The Contract Between the Parties

By an agreement in writing dated 16 June 1999 ("the agreement"), the appellant Palmbay Nominees Pty Ltd ("Palmbay") agreed to sell to the respondents, Mr and Mrs Fowler and Lorimar Southgate Transport Pty Ltd ("Lorimar"), a coach and charter business carried on by Palmbay under the name of "Shark Bay Coaches Charters" ("the business") for the sum of $100,000. The purchase price represented the good will. No plant, equipment or stock was included in the sale. Pursuant to the agreement, the purchase price payable was by an amount of $50,000 on the settlement date as specified in the agreement, with the balance of $50,000 to be paid by 24 equal monthly instalments of $2083.33 the first of which was to be paid on 29 July 1999. Settlement of the purchase took place on or about 29 June 2000 when Palmbay transferred ownership and the respondents took possession of the business and paid Palmbay the sum of $50,000. By a separate contract, the respondents purchased a bus from the appellants for $17,500.00.

Alleged Failure of the Respondents to Perform

The respondents subsequently paid Palmbay the sum of $18,749.77 by way of nine of the 24 monthly instalments of the purchase price. It was alleged in par 6 of the statement of claim that, in breach of the agreement, the respondents failed to pay instalments payable under the agreement in the total sum of $6249.99. The statement of claim also pleaded in par 7 that by letter dated 5 May 2000, the respondents repudiated the agreement. Further or alternatively, it was pleaded in par 8 that the respondents had, in breach of the agreement, failed or refused to pay any further sums by way of monthly instalments. In pars 9 and 10 it was pleaded that the conduct pleaded in pars 7 and 8 of the statement of claim amounted to repudiation of the agreement, which was accepted by the appellants by a letter to the respondents dated 11 July 2000 or, alternatively, by the appellants' issue of the writ in the action.
Based on these allegations, the appellants claimed the sum of $31,250.33 pursuant to the agreement or, alternatively, damages for breach of contract and interest at the rate of 6 per cent on such sum payable by the respondents.

The Respondents' Defence and Counterclaim

By their defence and counterclaim, the respondents admitted the agreement, but denied that the failure to pay the instalments in April, May and June 2000 was wrongful. The respondents admitted that they had paid no further sums. They denied, however, that they had evinced an intention not to be bound by the agreement or that they repudiated it. They contended that they had been induced to enter into the agreement by misrepresentations giving rise to a counterclaim against Palmbay for damages for misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth). What they said in par 6 of their defence is that in or about May/June 1999, Palmbay, by its director and agent, Mr Couper, (the second appellant) "verbally represented" to the respondents' agent one Southgate "in effect" that:
"6.1Greyhound was a steady public company which had operated for many years;
6.2A subcontractor was needed by Greyhound to provide the service operated by [Palmbay] and would continue to be needed by Greyhound in the future as it [Greyhound] had attempted to operate the service itself without success."
These allegations were admitted by the appellants in their reply and defence to the counterclaim to which I will refer to as "the reply".
It was also pleaded in par 7 of the respondents' defence and counterclaim that in or about May/June 1999, Palmbay provided to the respondents a written estimate of ingoings and outgoings of the business for the period March 1999 to February 2000, which provided for ingoings of $182,936 from Greyhound only, outgoings of $89,070 and a profit of $103,886. By their reply, the appellants admitted par 7, but said that the respondents knew or ought to have known that the written estimate related only to the Regular Passenger Transport ("RPT") operations of the business and was relevant only to a 14‑trip per week operation, which Palmbay had commenced at the request of Greyhound in February 1999, as distinct from the 6‑trip per week operation which had been conducted by Palmbay until then. It was also alleged that the estimate was provided in May 1999 to enable the respondents to compare the estimated ingoings and outgoings for the 14‑trip RPT operation with the projected figures for the 6‑trip operation, which were provided to the respondents at about the same time.
Par 7A of the defence and counterclaim pleaded that Palmbay, represented by Mr Couper, represented to the respondents that Palmbay had valuations of the business from two business brokers in Perth which valued the business at an amount of at least $126,000. This allegation was admitted by the appellants. In par 13.3 it was pleaded that this representation was false and misleading in that Palmbay did not have such valuations. It was pleaded that in reliance on the various representations, the respondents purchased the business; the making of the representations constituted engaging in conduct which was misleading or deceptive or likely to mislead or deceive contrary to s 52 of the Trade Practices Act 1974 (Cth). It was pleaded that as a result of the misrepresentations, the respondents suffered loss and damage in excess of the appellants' claim of $31,250.03. In par 4 of their reply, the appellants admitted the allegation made in par 7A of the defence and counterclaim. The sole issue at the trial was whether the representation was true or false or misleading and deceptive.
It was also pleaded in the defence and counterclaim that on 9 May 1999, Palmbay, represented by Mr Couper, represented to Mr and Mrs Fowler that the ingoings from Greyhound for the business for the 1997‑98 tax year amounted to $184,893 and that ingoings from tours and charters for that year amounted to $37,031. The appellants admitted in their reply that by a facsimile dated 9 May 1999, Mr Couper "advised" the respondents that ingoings from Greyhound in 1997-1998 were $184,893 and ingoings from tours and charters during the same period were $37,031.
It was further pleaded in par 8 of the defence and counterclaim that the representations pleaded in pars 6 and 7 impliedly represented that:
"8.1There were no reasons then known to [Palmbay] to expect that Greyhound would not continue to require [Palmbay's] services (and those of the [respondents] if the [respondents] purchased the business) until at least 1 February 2000;
8.2Greyhound was a company in a sound financial position such that its capacity to provide the totality of the income for the business was not in doubt;
8.3[Palmbay] made an annual profit in the order of at least $100,000."
The appellants admitted in par 6 of the reply that, on the basis of the information in their possession, they reasonably believed that Greyhound would be able to provide the business with an income in accordance with the estimate provided referred to in par 7 of the respondents' defence.
It was pleaded by the respondents in par 9 of the defence and counterclaim that each of the representations pleaded in par 8 were representations as to future matters as defined in s 51A of the Trade Practices Act 1974 (Cth) ("Trade Practices Act") and s 9 of the Fair Trading Act 1987 (WA) ("Fair Trading Act"). It was contended that each of the representations were false, untrue, misleading and deceptive.
In my opinion, there is a distinction between a representation which is false or untrue, on the one hand, and a representation that is misleading or deceptive on the other. A representation that is misleading or deceptive is not necessarily false or untrue.
In par 7 of the reply, the appellants pleaded that if the representations were as to a future matter as alleged in par 9 of the defence, the appellants had reasonable grounds to believe that they were true at the time they were made.
Further or alternatively, it was pleaded by the respondents in par 13 of the defence and counterclaim that the representations pleaded in pars 6.1, 7, 7A and 7B were false and misleading because:
(1)Greyhound was not a steady public company because on 1 October 1999 the shares in Greyhound were suspended from trading on the Sydney Stock Exchange. On 22 June 2000 Receivers and managers were appointed and at that time Greyhound owed the respondents $24,000 and had since been placed in liquidation.
(2)Palmbay did not make annual profits of $100,000 per annum, but in the year ended 30 June 1998 made a loss of $9673. It only showed a profit of $44,142 if directors' fees and wages were written back. In the year ended 30 June 1999, it made a loss of $2158. It only showed a profit of $51,383 if directors' fees and wages were written back.
(3)Palmbay had not received ingoings totalling $184,893 from Greyhound in the year ended 30 June 1998 but only $153,080.
(4)Palmbay had not received ingoings totalling $37,031 from tours and charters in the year ended 30 June 1998 but only $18,560.
Further or alternatively, it was pleaded that Mr Couper, in making these representations, engaged in the conduct or was involved in the contravention by Palmbay of s 52 of the Trade Practices Act. It was also pleaded that Palmbay, through Mr Couper, had engaged in unconscionable conduct contrary to s 51AA of the Act by which the respondents had suffered the loss and damage which was the subject of their counterclaim.
The respondents also counterclaimed damages against Palmbay and Mr Couper in respect of the misrepresentations alleged to have been made by Mr Couper as agent of Palmbay and for damages for misleading and deceptive conduct in contravention of s 51A of the Trade Practices Act and s 9 of the Fair Trading Act.

Palmbay's Reply and Defence to Counterclaim

In par 8 of their re‑amended reply, the appellants denied the alleged misleading or deceptive conduct and contended that the respondents were estopped from pursuing the issues raised in their defence and counterclaim because, in February 2000, Palmbay had commenced an action against the first respondents, Mr and Mrs Fowler, in the Local Court at Northam for the instalments due, pursuant to the contract in December 1999 and January 2000. No defence was filed to that summons. Judgment was duly entered by default and was satisfied by Mr and Mrs Fowler following the issue of a warrant of execution. Palmbay pleaded that the payments, the subject of the action in the Local Court, were made by the respondents without reference to the claims asserted by them in the District Court action. It follows that there was no judgment entered in the Local Court at Northam against Lorimar Southgate Transport Pty Ltd ("Lorimar"), which was not a party to these proceedings.
It was in the context of the representations said to have been made by Mr Couper, that Greyhound was a steady public company and needed a subcontractor, that Palmbay through Mr Couper provided to the respondents the written estimate of ingoings and outgoings for the business for the period March 1999 to February 2000, as well as the additional information to which I have also already referred.
The respondents maintained that the representations made by Mr Couper on behalf of the appellants were false, untrue, misleading and deceptive insofar as:
(1)Palmbay's trading terms with Greyhound required that Greyhound pay to Palmbay fees invoiced within 10 days from the date of the invoice;
(2)Palmbay's invoiced fees dated 29 March 1999 due to payment 8 April 1999 were not paid until 19 April 1999;
(3)Palmbay's invoiced fees dated 5 April 1999 due for payment 16 April 1999 were not paid until 19 April 1999;
(4)As at May 1999, Greyhound remained indebted to Palmbay for $15,580.50;
(5)Consequently as at 29 April 1999, Greyhound was unable to pay its debts as and when they fell due for payment.
The respondents contended that, but for those representations, they would not have agreed to purchase the business, which had no value if Greyhound was unable to fulfil its payment obligations.
It was in this context that it was contended by the respondents that the representations pleaded in par 6, that Greyhound was a steady public company and needed a subcontractor, were false and misleading. It was also contended that Greyhound was not a steady public company because on 1 October 1999 the shares in Greyhound were suspended from trading on the Sydney Stock Exchange and on 22 June 2000, Receivers and Managers were appointed. At that time, Greyhound owed the respondents an amount of some $24,000 and was subsequently placed in liquidation.
Further, it was alleged that Palmbay did not make annual profits in the order of $100,000 per annum. In fact, as it was pleaded, in the tax year ending 30 June 1998, Palmbay made a loss in relation to the business of $9673. Only if directors' fees and wages were written back would the business have shown a profit of $44,142. In the year ending 30 June 1999, Palmbay's business made a loss of $2158. Only if directors' fees and wages were written back would the business have shown a profit of $51,383. Palmbay did not in fact have valuations from two business brokers in Perth which valued the business in an amount of at least $126,000, as Mr Couper had represented. The business had not received ingoings totalling $184,893 from Greyhound for the 1997‑98 tax year as Mr Couper had represented and, in fact, had received ingoings totalling $153,080. The business had not received ingoings totalling $37,031 from tours and charters for the 1997‑98 tax year and, in fact, had received ingoings totalling $18,560.
The appellants pleaded that, if the respondents knew that, as at 29 April 1999 Greyhound was unable to pay its debts as and when they fell due, then Lorimar was similarly possessed of such knowledge because Mr Southgate was, by virtue of his employment by the plaintiff, aware of the payment arrangements that existed between Palmbay and Greyhound and that Greyhound was sometimes late in paying invoices. It was also pleaded that, despite such knowledge, the respondents took possession of the business and continued to make payments of monthly instalments pursuant to the agreement, which constituted an affirmation by the respondents of the agreement and precluded any right to rescind.
It was also pleaded in the defence to the counterclaim that:
"7.5The said affirmation of the agreement is confirmed and emphasised [by] the payment on or about 31 March 2000 by the [respondents] to [Palmbay] of two late instalments of the purchase price, being the instalments due in December 1999 and January 2000 following the issuing of proceedings by [Palmbay] in the Northam Local Court Plaint No 49 of 2000 on or about 21 February 2000;
7.6The [respondents] [or either of them] did not file a Defence or a Counterclaim in response to the said Northam Local Court proceedings and payment was made by the [respondents] to [Palmbay] without any reference to any allegations that [Palmbay] was in breach of the agreement on the grounds alleged in the Defence or Amended Counterclaim or at all; and
7.7In the premises there can therefore be no basis of any purported rescission of the agreement founded on the occurrence of any event which occurred prior to 31 March 2000."
In my opinion, the fact that Palmbay had entered judgment against Mr and Mrs Fowler in the Northam Local Court was not conceded by counsel for the respondents in submissions filed in the District Court dated 25 February 2002. On the contrary, it was submitted on behalf of the respondents at the trial that the matter could not be determined in limine, ie, without evidence. As counsel put it in his written submissions to the trial Judge:
"This is apparent by the fact that in order for the matter to be heard at once the Court will have to accept as evidence what is stated in paragraphs 1 to 7 of the plaintiff's submissions. It is submitted that it is not competent for the Court to accept as evidence the facts and allegations contained in those paragraphs."

Paragraphs 1 to 7 of the appellants' submissions at the trial recounted the entry into the agreement; the terms of the agreement, the payment of the first five monthly instalments; the failure to pay the instalments due to December 1999 and January 2000; the proceedings in the Local Court at Northam; the obtaining of the default judgment; and the payment by Mr and Mrs Fowler of the amount claimed in the summons together with the payment of the further instalment in February and March 2000. Clearly, the appellants were required by the pleadings in the District Court to prove the Local Court judgment.
The learned trial Judge dealt with the Local Court proceedings very shortly at pars [50] – [53] of his judgment, noting that Lorimar was not named as a defendant. In particular, his Honour said at [52] – [53]:
"Mr and Mrs Fowler did not file a 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 moneys claimed under the summons.
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."
No evidence was led at the trial to prove the judgment in the Local Court. The appellants relied upon an alleged concession of the existence of the judgment in the submissions filed in the District Court by counsel for the respondents.
It was contended, however, on behalf of the appellants, that in failing to consider the Local Court judgment, the learned trial Judge erred in law in finding that pars 7.5, 7.6 and 7.7 of the appellants' reply and defence to counterclaim were not made out. The basis for this contention was that the respondents had affirmed the agreement by paying the two outstanding instalments the subject of the default judgment in the Local Court on or about 31 March 2000, without reference to any allegation that the appellant Palmbay was in breach of the agreement, on the grounds alleged in the defence and counterclaim or at all. Hence there was no basis for any purported rescission of the agreement founded on the occurrence of any event prior to 31 March 2000.
The appellants also pleaded in par 8 of their reply and defence to counterclaim that:
8.1If the appellants knew as at 29 April 1999 that Greyhound was unable to pay its debts as and when they fell due (which was denied), then Lorimar was similarly possessed of that knowledge because Mr Southgate, a director of Lorimar was employed by the appellants as manager of the business and had the requisite knowledge;
8.2By virtue of the partnership between Lorimar and the first respondents the knowledge by one of them was imputed to the others;
8.3Despite that knowledge, the respondents took possession of the business and made payment of monthly instalments of purchase price pursuant to the purchase agreement;
8.4Such payments constituted an affirmation of the agreement by the respondents;
8.5The affirmation was confirmed by the payment of the late instalments of purchase price, being the instalments due in December 1999 and January 2000 following the issue of proceedings in the Northam Local Court on 21 February 2000;
8.6The respondents did not file any defence or counterclaim in the Northam Local Court and payment of the judgment was made without any reference to any allegations made in the defence and counterclaim in the District Court.
8.7In the circumstances there was no basis for any purported rescission of the agreement founded on any event which occurred prior to 31 March 2000.
The appellants' claim was dismissed and judgment was given on the counterclaim in favour of the respondents in the sum of $40,303 and costs. On the appeal, the appellants seek to have the judgment below set aside and that in lieu thereof there be judgment for the appellants against the respondents in the sum of $31,250.33 plus interest thereon at 6 per cent per annum from 5 May 2000 until payment, pursuant to s 32 of the Supreme Court Act 1935 (WA), and an order that the respondents pay the appellants' costs of the appeal and the action to be taxed.

Grounds 1 and 2 of the Appeal

Grounds 1 and 2 of the grounds of appeal can conveniently be dealt with together.
Ground 1 of the appeal contends that the learned trial Judge erred in finding that Palmbay did not enter judgment against Mr and Mrs Fowler in Northam Local Court Plaint No 49 of 2000 because that fact was conceded by the respondents in submissions filed by their counsel dated 25 February 2002. It was further contended that in failing to consider the effect of such judgment, the learned trial Judge erred in law in finding that the matters pleaded by Palmbay in pars 8.5, 8.6 and 8.8 of the further amended reply and defence to counterclaim were not made out.
Ground 2 of the grounds of appeal contended that the trial Judge erred in law in failing to consider two facts proved by the appellants at the trial, namely, that the respondents had:
(a)paid the moneys claimed by Palmbay pursuant to the Local Court judgment on or about 31 March 2000; and
(b)paid the instalments for February and March 2000 due under the agreement and after the respondents had operated the business for approximately nine months.
The ground also contended that these facts established as a matter of law that:
(1)There was no basis for the purported rescission of the agreement founded on any event prior to 31 March 2000;
(2)The respondents had affirmed the agreement by payment of the instalments due; and
(3)There was no reliance by the respondents on any representation made by Mr Couper.
Ground 3 was abandoned.
In the written submissions on behalf of Palmbay at the trial, counsel for the appellants referred to the issue of the proceedings in the Local Court at Northam against Mr and Mrs Fowler, their failure to file a defence and the obtaining of a default judgment. Reference was also made to the payment of the subsequent instalments due in February and March 2000. It was contended that "the defendants" were estopped from denying the judgment and "from raising any issues by way of defence or counterclaim" in the subsequent proceedings "which they could or should have raised " in the Local Court.
In the written submissions on behalf of the respondents in the District Court, it was submitted by counsel that the issue so raised could not be determined in limine (ie, without evidence). This was because the Court would be required to accept as evidence what was stated in the relevant paragraphs of the appellants' submissions. As counsel for the respondents put it in his written submissions to the trial Judge:
"This is apparent by the fact that in order for the matter to be heard at once the Court will have to accept as evidence what is stated in paragraphs 1 to 7 of the plaintiff's submissions. It is submitted that it is not competent for the Court to accept as evidence the facts and allegations contained in those paragraphs."
Clearly, these submissions required the appellants to formally prove the Local Court judgment and any other relevant facts not admitted at the trial. The plain fact is that this was not done. In my view, the judgment in the Local Court at Northam was not admitted either on the pleadings or by counsel for the respondents whether expressly or by implication. The judgment was simply not proved. Hence it could not be relied upon as an estoppel by record or a relevant admission by or on behalf of the respondents.

Respondents' Notice of Contention

By their notice of contention, the respondents contend that the judgment of the learned trial Judge should be affirmed on two additional grounds. Ground 1 contended that the representations made by the appellants in relation to the financial performance of the business pleaded in pars 7 and 7B as read with pars 13.2, 13.4 and 13.5 of the defence and counterclaim (as amended on 25 February 2002) were misleading and deceptive (or likely to mislead or deceive) for the purposes of the Trade Practices Act 1974 on the following grounds:
1.1material differences between the figures provided by the appellants to the respondents and the actual figures in Palmbay's accounts as detailed by Mr James Thompson in his report dated 25 January 2002; and
1.2the fact that Mr Thompson had not examined the source documentation for these figures should not have dissuaded the learned Judge from finding that they were misleading and deceptive because, by reference to the actual accounts of Palmbay, the figures provided by the appellant prior to the purchase were misleading and deceptive as the profits were overstated.
Ground 2 of the Notice of Contention by the appellants was expressed as being further, or alternative to, ground 1 contending that the representations by the appellants pleaded in pars 8 and 11 of the defence and counterclaim, to the effect that Greyhound was a steady public company which had operated for many years, were misleading and deceptive (or likely to mislead or deceive) because:
2.1at the relevant time Greyhound was experiencing financial difficulties and having difficulty servicing its debts;
2.2payment of only one invoice to Greyhound was received in the first eleven weeks after the business was opened;
2.3Mr Couper admitted by letter dated 6 January 2000 that the appellants had experienced difficulty for many years receiving payment from Greyhound, which had not been disclosed;
2.4on 1 October 1999 trading in Greyhound shares was suspended and in June 2000 Greyhound was placed in receivership when it owed the respondent $24,000; and
2.5whether or not the financial difficulties were known to the appellants at the time the representation was made is not material.

Affidavit of Gregory Keith Paull

At the outset of the hearing of the appeal, counsel for the appellants sought to rely on an affidavit of Gregory Keith Paull relating to the judgment obtained by the appellants against the respondents, Mr and Mrs Fowler, in the Local Court at Northam. Mr Paull's affidavit sworn 28 February 2003 deposed that he was counsel for the appellants at the trial in the District Court. He says that the trial was conducted on the basis that all parties accepted that there had been a judgment against the first respondents in the Local Court at Northam for moneys owing pursuant to the agreement for the sale of the subject business, as referred to in par 2 of the statement of claim by Palmbay in the District Court.
The affidavit exhibits a copy of the default judgment in the Local Court against the respondents, Mr and Mrs Fowler, in the sum of $4305.86 in favour of Palmbay, together with a copy of the summons and particulars of the claim. From the facts deposed to, it is clear that the institution of the proceedings in the Local Court and their outcome was common ground in the District Court and not disputed. The material establishes that on 21 February 2000, a warrant of execution to enforce the judgment was satisfied in full, inclusive of costs. The particulars of claim were described as "money owing as per agreement dated 16‑6‑99 for purchase of business. Plaintiff claims $4166.66 plus costs". It was common ground that this related to the sale of the business, the subject of this litigation, being the instalments of purchase price due in December 1999 and January 2000.
These facts led to a matter in issue on the pleadings in the District Court. The appellants' reply and defence to the respondents' counterclaim in the action, pars 7.5 and 7.6, pleaded that payment of the two instalments of purchase price pursuant to the sale agreement "without reference to any allegations that [Palmbay] was in breach of the agreement meant that there was no basis for any rescission of the agreement founded on the occurrence of any event which occurred prior to 31 March 2000".
The learned trial Judge noted that Lorimar, the first respondent, which was the purchaser jointly named with Mr and Mrs Fowler, who were the second respondents, had not been named as a defendant in the Local Court proceedings. Mr and Mrs Fowler did not file a notice of intention to defend. Mr Southgate contacted Mr Couper and asked him to withdraw the summons issued by Palmbay. Mr Couper refused. Mr and Mrs Fowler then paid the amount claimed. As it happened, Palmbay did not enter judgment against Lorimar which was never a party to the proceedings. Consequently, the learned Judge held that the pleas of issue estoppel and res judicata were not made out as against Lorimar. In relation to both res judicata and issue estoppel, neither doctrine applies unless the parties in both proceedings are identical: Tedeschi v Legal Services Commission (1997) 43 NSWLR 20; Isaacs & Sons v Salbstein [1916] 2 KB 139. Because Lorimar was not a party to the proceedings in the Local Court, there could be no issue of estoppel as against Lorimar.
Further, it was contended that the counterclaim by the respondents exceeded the jurisdiction of the Local Court: Carl Zeiss Stiftung v Rayner & Keeler Ltd [1966] 2 All ER 536 at 554. Section 30(1) of the Local Court Act confers jurisdiction on the Local Court in respect of all personal actions in which the amount claimed is not more than $25,000. In the context of a counterclaim, however, s 34(1) provides that where any defence or counterclaim of the defendant involves matters beyond the jurisdiction of the Local Court, the Court has a duty to dispose of the whole matter in controversy. Except as provided by s 34(2), no relief exceeding that which the Local Court has jurisdiction to administer may be given to the defendant upon any such counterclaim.
Section 34(2)(a) provides that, in the case of a counterclaim, the jurisdiction of the Local Court shall not be excluded because the counterclaim comprises more than one cause of action, each of which is within jurisdiction because the aggregate amount exceeds the jurisdiction. Section 34(2)(b) provides that where the amount of the counterclaim exceeds the jurisdiction of the Local Court, the Court may give relief otherwise exceeding the jurisdiction of the Court, provided that the plaintiff does not object, within the prescribed time to the Court granting such relief.
In the result, the counterclaim in the District Court action resulted in a judgment in favour of the respondents for damages in the sum of $40,303 which would have been beyond the jurisdiction of the Local Court. It follows that the Local Court was not relevantly a court of competent jurisdiction to try the respondents' counterclaim. In my opinion, s 34(2)(b) contemplates that in a case where the amount of the counterclaim is for an amount of money exceeding the jurisdiction of the Local Court, the counterclaim will not be excluded from the jurisdiction provided that the plaintiff does not object in writing, within the prescribed time, to the Court giving relief exceeding that which the Court would otherwise have jurisdiction to administer.
It was a matter for the appellants to plead and prove their case in the District Court. The onus rested on them at the trial. In my opinion, so far as Mr and Mrs Fowler were concerned, the payments made by them of instalments of purchase price did not of themselves have any effect by way of an estoppel, so as to bar any defence they subsequently wished to raise.
To the extent that there was an estoppel, it would only extend to prevent them, in the future, denying that they were liable to pay the instalments the subject of the action in the Local Court at that stage. They would not be estopped from claiming damages for breach of contract if they subsequently discovered facts giving rise to a claim for damages or other relief against the appellants of the kind exemplified by their defence and counterclaim in the District Court action.
It was submitted on behalf of the appellants that:
" … all matters pertaining to the agreement, and the obligations of the [appellants] thereunder were decided by the judgment obtained in the Northam Local Court. It cannot be said that the effect of the judgment was directed to the obligation of the [appellants] to make payments of the two outstanding instalments because the payment of each was not a separate agreement but an inextricable part of their obligations to pay the whole of the purchase price."
The appellants relied on the statement by Vaughan Williams J in Re South American and Mexican Co; Ex parte Bank of England [1895] 1 Ch 37 at 45 that:
"It has always been the law that a judgment by consent or default raises an estoppel just in the same way as a judgment after the court has exercise a judicial discretion in the matter."
On appeal, in the same case, in upholding the decision of the learned Judge, [1895] 1 Ch 37 at 50, Lord Herschell said:
"The truth is that a judgment by consent is intended to put a stop to litigation between the parties just as much as is a judgment which results from a decision of the Court after the matter has been fought out to the end … "
It is significant that Lord Herschell did not adopt the suggestion by Vaughan Williams J, obiter, that the same applied to a judgment by default.
In Cooke v Rickman [1911] 2 KB 1125, there was a claim for rent under a tenancy agreement. The defendant admitted liability for part of the rent due and judgment was entered under O 14 of the rules of the Court for that amount. In a second action to recover further rent, the tenant sought to plead that the tenancy agreement was unenforceable for want of consideration. It was held that the tenant was estopped from raising the defence in the second action on the authority of Humphries v Humphries [1910] 2 KB 531. See also In Re Jon Beauforte (London) Ltd; Applications of Grainger Smith & Co (Builders) Ltd; John Wright & Son (Veneers) Ltd; and Lowell v Baldwin Ltd (1953) 1 All ER 634.
The judgment against Mr and Mrs Fowler in the Local Court was a judgment in default of defence. A judgment or order made in default of a defence is not one made on the merits so as to give rise to a plea of res judicata or issue estoppel: Baines v State Bank of New South Wales (1985) 2 NSWLR 729 at 738 per Powell J. A judgment or order made "on the merits" includes an order or judgment made following a trial, even where no evidence is led by the defence: SCF Finance Co Ltd v Masri (No 3) [1987] QB 1028. It also includes a judgment founded on admissions by the defendant as to give effect to a compromise: Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 at 1010 per Viscount Radcliffe; and Spens v Inland Revenue Commissioners [1970] 1 WLR 1173 at 301 per Megarry J.
This was enough to dispose of the matter but the appellants sought to overcome the difficulty by a submission challenging the finding by the trial Judge that Palmbay did not enter judgment against all the respondents. It was contended that this had been conceded by the respondents in submissions filed by their counsel in the District Court dated 25 February 2002. It was contended by the respondents' counsel in those submissions, "as a threshold point", that the appellants' submission at the trial was that the respondents were estopped from raising the matters pleaded in their defence and counterclaim as these matters should have been pleaded in the Northam Court. It was further contended by the appellants that the respondents were precluded from doing so by either the doctrine of res judicata or issue estoppel. Reliance was placed upon Jackson v Goldsmith (1950) 81 CLR 446 at 466 per Fullagar J; Arnold v National Westminster Bank plc [1990] 1 All ER 529 at 535 per Dillon LJ; Blair & Perpetual Trustee Co Ltd v Curran (1939) 62 CLR 464; and Kasnovic v Sarapuu [1962] VR 321 (FCt).
It was submitted on behalf of the respondents that neither doctrine could apply because it is a requirement of both res judicata and issue estoppel that there must be identity of parties. Lorimar was not a party to the earlier proceedings, so that it could not have been estopped or otherwise bound by the decision. So far as Mr and Mrs Fowler were concerned, in my opinion, the payment by them of the amount of the judgment and the payment of the two later instalments was no more than an acknowledgement that, as matters then stood, unless and until they instituted proceedings in the District Court themselves, or were sued in that Court for the balance of the purchase price, they could not raise all the matters they wished to raise by way of counterclaim in the Local Court. At that stage, they had not had the benefit of legal advice. The amount claimed as against them in the Local Court was paid out of their personal finances, not from partnership funds. As they said in evidence at the trial, they were still hoping to do the right thing by the appellants, but were dependent upon the respondents being paid by Greyhound. At that time, they were not aware of the falsity of the representation later found to be false, misleading and deceptive.

It was acknowledged by counsel for the appellants that the matters deposed to in the affidavit by Mr Paull concerned material which was available to the appellants at the time of trial in the court below and did not readily fall into the category of "fresh evidence" which might attract the operation of O 63 r 10: Orr v Holmes (1948) 76 CLR 632 at 640; and Greater Wollongong City Council v Cowan (1955) 93 CLR 435 at 444. It was contended on behalf of the appellants that there appeared to be no need to lead evidence of the Local Court judgment in the District Court, having regard to the manner in which the trial proceeded.
It was in this context that reference was made to the exchange between the learned trial Judge and counsel as noted in the supplementary Appeal Book. His Honour raised with counsel for the appellants the need for the appellants to prove the judgment in the Local Court at the outset, in order to pursue the argument based upon res judicata or issue estoppel. Having heard the submissions of counsel, his Honour determined that he should hear the whole case and all the evidence, including the evidence on the pleas of issue estoppel and res judicata, and deliver his judgment in the light of all of the relevant evidence.
It was contended by counsel for the appellants that, in this case, the written submissions made by counsel for the respondents at the trial were to the following effect:
(1)The first respondents (ie Mr and Mrs Fowler) were the parties against whom the Local Court judgment was obtained.
(2)The default judgment relied upon by the appellants was entered in the Local Court at Northam.
(3)The relevant admission to the Court made by counsel for the respondent clearly referred to the judgment relied upon by the appellants as pleaded in pars 7.5 and 7.6 of the Further Amended Reply and Counterclaim.
It was submitted on behalf of the appellants that, in the circumstances, the conclusion that Palmbay did not enter judgment in the Local Court against Mr and Mrs Fowler was in error. As has been seen, the judgment in the Local Court at Northam was in fact obtained against Mr and Mrs Fowler. The material now sought to be relied upon by way of Mr Paull's affidavit is material which was available to the appellants in the court below at the time of trial. As was submitted by Mr Shanahan, the issue then became whether or not the opportunity to question this material was fully canvassed with the appellants in the District Court. At the trial, the appellants had the onus of proof of the judgment. It was contended that it had been admitted at the trial, or it was common ground, that the judgment had been entered by default in the Local Court at Northam and that as a result of the issue of a warrant of execution on the same day, the amount of the judgment was satisfied in full.
It was contended by counsel for the respondents that it was not common ground at the trial that the default judgment had been obtained against the first respondents on 21 February 2000 and satisfied on that date. Counsel for the respondents pointed out that there was no reference to the judgment in the Local Court in the pleadings. In response to submissions filed on behalf of the appellants at the trial, submissions filed by the respondents made reference to a default judgment having been obtained in the Northam Local Court. At the trial, a written submission was made on behalf of the appellants that:
"The defendants elected not to file a notice of intention to defend and as a consequence the plaintiff, first defendant by counterclaim, obtained a judgment in default."
This is recorded at par 6 on p 345 of the trial transcript. It was in response to that submission that counsel for the respondents had made reference to the default judgment in his submissions. It was submitted, however, that the relevant submission was not an admission or intended as such. As it was put by counsel for the respondents:
"My submissions were purely in response to the submissions of the plaintiff and accepting that what was stated there as a fact was correct."
It was submitted that there was not otherwise anything said about the default judgment. The learned trial Judge pointed out to counsel for the appellants that they had not proved the judgment. Counsel for the appellants conceded this point and no evidence was led to prove the judgment. There was an argument at the trial whether the question of res judicata was capable of being determined as a threshold point. This did not in fact take place because the submissions filed on behalf of the respondents at the trial required the fact that there had been a judgment to be proved. In the result, this Court was unanimously of the opinion that in the particular circumstances of this case, there were special reasons why the affidavit of Mr Paull should be admitted as evidence on the appeal, there being no substantive reason why the material should now be excluded.
Mr Paull says that on 25 February 2002, the first day of the trial, the appellants' counsel handed to the court and counsel for the respondents his outline of submissions on the estoppel point. These submissions set out the terms of the "Agreement to Purchase Business" dated 16 June 1999 by which Mr and Mrs Fowler and Lorimar agreed to purchase the subject business, including the agreed purchase price of $100,000, payable by a lump sum of $50,000 on settlement on 29 June 1999, and the balance by 24 equal calendar monthly instalments of $2083.30 free of interest, the first such instalment to be paid on 29 July 1999. It was contended that the respondents paid, albeit late, the instalments due in July, August, September, October and November 1999, but failed to make the instalments due in December 1999 and January 2000.
On 31 January 2000. Palmbay issued proceedings in the Local Court at Northam by Plaint No 49 of 2000 against Mr and Mrs Fowler claiming the sum of $4166.66 being "money owing as per agreement dated 16‑06‑99 for purchase of business". It was also contended that the matters, the subject of those proceedings, were "in all respects identical to the within proceeding" (i.e. the proceedings in the District Court). This, of course, was incorrect in that the appellant did not join Lorimar as a defendant in the Local Court proceedings, although it was a party to the agreement. It was asserted that the "defendants" (ie, the first respondents) paid the February 2000 and March 2000 instalments due under the agreement, but had refused to make further payments. Based on these contentions and assertions, it was said by the appellants that:
"In the circumstances, the Plaintiff (First Defendant by Counterclaim) [ie Palmbay] claims that the defendants are estopped from denying the judgment obtained in the Northam Local Court and further, from raising any issues by way of defence or counterclaim to the within claim which they could or should have raised in response to the proceedings commenced by the Plaintiff (First Defendant by Counterclaim) in the Northam Local Court."
In my opinion, the proceedings in the Northam Local Court, leading to the entry of judgment in default of defence, raised an estoppel which prevented Mr and Mrs Fowler from subsequently asserting that, at the time when the judgment was obtained, those instalments of the purchase price were not due and payable. The question is whether the evidence of the judgment raised an estoppel which prevented the respondents from seeking to avoid liability for the payment of any further instalments on the basis of facts subsequently discovered, which entitled them to avoid the contract and/or claim damages against the appellants.
In the respondents' submissions at the trial, it was contended, first, that the merits of the appellants' submissions could not be determined in limine without evidence being led, as it would not be competent for the Court "to accept as evidence the facts and allegations contained in pars 1 to 7 of the appellants' submissions". Secondly, it was contended that both the doctrines of res judicata and issue estoppel required the identity of the parties: Tedeschi v Legal Services Commission (supra) and Isaacs & Sons v Salbstein (supra). As has been stated, Lorimar was not a party to the Northam Local Court proceedings.
An issue was also raised whether the Local Court was a court of competent jurisdiction, but it was clear that the amount of the instalments sought to be recovered in the Local Court was within jurisdiction.
The issue at trial was whether the appellants were entitled to be paid the remaining instalments of the purchase price, once the respondents had discovered that they had a cause of defence and a right of set‑off in respect of their counterclaim for damages, by reason of the misrepresentations made by the respondents. This gave rise to a counterclaim for damages under the general law or the Trade Practices Act 1974, or the Fair Trading Act 1987 (WA), which could include by way of damages the sums they were previously required to pay pursuant to the judgment of the Local Court.
At the outset of the trial in the District Court, counsel for the appellants raised two matters on the estoppel point. The first matter was that the point had not been pleaded. At that stage, the parties consented to amendments in the form of a further amended defence to counterclaim, and a further amended reply to that defence. In the context of the pleaded representations relied upon by the respondents, the appellants denied the representations and also pleaded that, if Palmbay and Mr Couper knew that, as at 25 April 1999, Greyhound was unable to pay its debts as they fell due (which was denied), then Lorimar also knew that. This was said to be so because Mr Southgate, a director of Lorimar, was employed by Palmbay as its manager and had the relevant knowledge by virtue of such employment, in that he was aware of the payment arrangements between Palmbay and Greyhound, and that Greyhound were sometimes late in paying Palmbay's invoices.
In this context, it was contended that by virtue of the fact that Lorimar and the second respondents were partners, the second respondents were fixed with the same knowledge as Lorimar by virtue of Mr Southgate's knowledge. There was no evidence that the second respondents had actual knowledge. There was no evidence that Mr Southgate had passed on his knowledge to Mr and Mrs Fowler. While Mr Southgate may have had such knowledge in his capacity as an employee of the appellant company, Palmbay, it did not follow that he had that knowledge in his capacity as a director of Lorimar, which was a partner of the second respondents, so as to fix the partnership with the requisite knowledge. On the contrary, in my opinion, Mr Southgate was or was more likely to be under a duty not to disclose any such information he may have known or acquired as an employee of Palmbay to Lorimar or Mr and Mrs Fowler: cfUnioil International Pty Ltd v Deloitte Touche Tomatsu (a firm) (1997) 17 WAR 98 per Ipp J at 106 – 111 and the cases there cited. As Ipp J pointed out at 107, a partnership does not have a separate legal existence apart from the partners. While there may be a presumption that the knowledge of one partner constitutes the knowledge of all the partners, such a presumption is rebuttable: MacDonald Estate v Martin (1990) 77 DLR (4^th) 249 at 268 per Sopinka J. See also the authorities cited by Ipp J in Unioil at 108. Whether knowledge will be imputed depends upon the circumstances under which the knowledge was obtained by Mr Southgate. He gained the knowledge as an employee of Palmbay and had a duty of confidentiality not to disclose it to a third party. There was no evidence that Mr Southgate did in fact pass on this information.
In my opinion, if, in the present case, the first respondents were to be fixed with Mr Southgate's knowledge, it would be a very artificial example of constructive knowledge. It involves fixing the purchasers of the business in partnership with a former employee of the vendor company with the same knowledge of the affairs of the business as the former employee, because that employee had become an officer of a company which had formed a partnership with the other two individual purchasers to acquire the relevant business. In my view, it would be a breach of Mr Southgate's duty of confidentiality to Palmbay to disclose confidential information gained as an employee of Palmbay to the respondents. The law would not presume such a breach without specific evidence. There was no such evidence.
It was contended by the appellants, however, that there was no need to lead evidence of the Local Court judgment at the trial because of the manner in which the trial proceeded. This was said to be so because the trial Judge raised with counsel for the appellants the need to prove the Local Court judgment at the outset of the trial in order to pursue the res judicata and issue estoppel arguments. His Honour pointed out to counsel for the appellants at the trial that the estoppel point had not been raised in the pleadings. Counsel for both sides had agreed to consent to amendments to the pleadings by both the appellants and the respondents, but explained that they had some difficulty with filing them in the Registry. An amended book of pleadings was handed to the trial Judge on the basis that the necessary amendments should be taken as made by consent. In the result, the trial Judge gave the respondents leave to amend their defence and counterclaim in terms of a minute dated 31 January 2002 and the appellants leave to amend their reply and defence to counterclaim dated February 2002. The trial Judge directed that, in each case, the minutes stand as the amended pleadings and further filing and service was dispensed with. The matter was left, therefore, on the basis that the trial Judge would not deal with the pleas of issue estoppel and res judicata as preliminary issues, but would deal with them in the light of all the evidence on the basis that the respondents, as the defendants in the District Court, would begin.
It follows that, in the absence of the necessary evidence, each of the pleas in pars 8.1, 8.2 and 8.3 of the reply must fail. It also follows that the payment of monthly instalments prior to the discovery of the true facts did not constitute an affirmation of the agreement so as to preclude the right of the respondents to rescind the contract. It further follows that when the instalments of purchase price due in December and January 2000 were paid, that did not deprive the respondents of their right to rescind upon subsequently learning of the true situation, any more than the failure of Mr and Mrs Fowler to defend the Local Court proceedings deprived the respondents of their right to rescind the agreement or claim damages for misleading and deceptive conduct.
The trial was conducted on the basis that the respondents admitted the sale agreement so that the onus of proof in relation to the matters raised in the defence rested on the respondents. Consequently, the respondents exercised their right to begin at the trial.
In its defence to the counterclaim, Palmbay pleaded a number of defences. The first was that Mr Southgate, who was a director of Palmbay, knew about the late payments by Greyhound prior to the sale of the business. Counsel for the appellants contended at the trial that Mr Southgate, a director of Lorimar, knew about the late payments by Greyhound to Palmbay and that Mr Southgate could not now be heard to complain about it. His evidence was that he did not collect the money as it had not been sent to him. Before the sale of the business from Palmbay to Lorimar and Mr and Mrs Fowler, he had no idea when payments were made by Greyhound to Palmbay when it was involved in the appellants' business. There were also other issues raised by the appellants such that the figures provided by the respondents related only to the "regular transport operations" of the respondents' business. There were tours from Denham to Monkey Mia and other places off the main highway. Greyhound provided the transport on the main highway and Lorimar provided the services off the main highway. The figures provided to the respondents included both Greyhound's income and the other tours.
The respondents' case at the trial was essentially that without Greyhound and the source of passengers provided by Greyhound, there would not be a business. Hence, misrepresentations about Greyhound's future viability were of critical importance. It was conceded on behalf of the appellants that, at the time of the negotiations with Palmbay and Mr Couper, Palmbay was experiencing difficulty with Greyhound and knew or ought to have known that it was in difficulty and that the position should have been made known by Palmbay to the respondents.
The evidence by or on behalf of the respondents that the value of the business was misrepresented was such that, if accepted, it entitled the respondents to recover damages under the Trade Practices Act 1974 and the Fair Trading Act.
The learned Judge found that the respondents 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 these was payment. Mrs Fowler said in that respect:
"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 credit and good will of the Denham businesses so we urgently need to be paid."
At that time, the respondents 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 dated 12 August 1999 did not result in Greyhound paying the money owed. On 20 August 1999, Mrs Fowler wrote again to Mr Simpson as follows:
"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."
On 24 August 1999, Mrs Fowler wrote to Mr Garth Anderson in Greyhound's Brisbane office. She understood he was in charge of payment of accounts. She informed him that the respondents 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.
By 30 August 1999, Greyhound had made one payment of $4389 to the respondents, but still owed them $24,589.50. On that day, Mr Fowler wrote to Mr Simpson and Mr Southgate wrote to 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 respondents 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.
Greyhound then paid $15,000 to the respondents and agreed to pay $4000 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.
In September or October 1999, Mr Southgate noticed that Greyhound's shares had dropped dramatically in price and eventually the Stock Exchange suspended trading. In November 1999, the respondents heard from drivers employed by Greyhound that Greyhound was considering no longer using the respondents' services but instead running their own buses into Denham. If that had occurred, the respondents 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 Greyhound did not cease using their services. Mrs Fowler wrote to Mr Couper complaining that the business they had acquired had no good will 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.

Greyhound made further payments to the defendants, but continued to be behind in those payments. As a result, the respondents fell behind in their payments to the appellants. 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, but that Greyhound had assured the respondents that they would receive payment that week, and as soon as that happened, the respondents would pay the appellants. Mrs Fowler apologised for the delay in payment and expressed the hope that it would not occur again. In cross‑examination, counsel for the appellants at the trial asked Mrs Fowler why, in that letter, she did not complain to Mr Couper that the problems that the respondents 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. The learned trial Judge accepted that evidence. His Honour noted that the respondents had paid money and incurred financial commitments to the appellants on purchasing the business. They were also seeking to earn income from the operation of the business. His Honour said, in particular:
"I find nothing surprising about the fact that their highest priority was to ensure that the business remained viable."
Mr Couper replied to Mrs Fowler's fax of 4 January 2000 by a fax dated 6 January 2000 saying:
"We do understand your problems with Greyhound Pioneer Pty Ltd for as you are aware, we experienced these similar delays for many years."
As to that, the learned Judge said in pars [48 ‑ 49] of his reasons:
"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 appellants] had experienced delays in receiving payment from Greyhound for many years.
49.I do not conclude from Mr Couper's fax of 6 January that Mrs Fowler knew before the defendants purchased the business that the [appellants] had experienced delays in payment from Greyhound."
His Honour then went on to refer to the proceedings in the Local Court and made the findings in respect of that action to which I have already referred. The amount claimed represented the instalments due in December 1999 and January 2000. I have already referred to the circumstances under which payment of the amount claimed was made.
The respondents did not make a payment to the appellants in April 2000. On 3 May 2000, Mr Couper wrote to Mr and Mrs Fowler requiring payment. On 5 May 2000, the respondents responded as follows:
"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 were aware that Greyhound were in serious financial trouble. 3 months after the sale, Greyhound's 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 1 year's net profit, we now believe that 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."
On 8 June 2000, the respondents 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 respondents obtained a default judgment against Greyhound but the moneys owed were not paid. Greyhound was put into receivership in the same month.
In the year ended 30 June 2000 the business derived sales income of $164,976.19. This was based on invoices rendered by the respondents to Greyhound. It included approximately $27,000 which Greyhound had not paid which was subsequently written off. The business incurred expenses of $157,341.25 and made a profit of $7634.04. The expenses included management fees of $40,036.75 paid to Laurie Maher and $14,132.11 paid to Mr and Mrs Fowler for services provided to the business, including the driving of buses.
By comparison, the learned Judge made a number of findings regarding the financial performance of the business while it was operated by the appellants. In the year ended 30 June 1996 the total income of the business was $216,202, of which $180,341 was income from Greyhound. Expenses were $196,120, resulting in an operating profit of $20,082. In the year ended 30 June 1997 total income was $189,457. The income from Greyhound was $150,038. Total expenses were $168,611 and the operating profit $20,846. 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 $9673. In the year ended 30 June 1999, the final year that the appellants 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 $2158.
So far as the representations were concerned, the learned Judge found that the respondents relied upon representations of three kinds. These were, firstly, representations regarding the financial performance of the business, secondly, representations regarding Greyhound's financial position and, thirdly, a representation that the appellants had received valuations from two business brokers which valued the business at the lowest figure of $126,000.
It was also found that there were variations between the figures provided by Mr Couper to the respondents and the financial figures prepared by the appellants' 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. The figures provided by Mr Couper were based on receipts rather than invoices. Palmbay's accounts were based on invoices to Greyhound. Sometimes Mr Couper's figures showed the business performing more favourably than Palmbay's accounts, but sometimes less favourably.
Evidence was given by an expert called on behalf of the respondents, Mr J R Thompson, a business valuer. He noted the differences between the two sets of figures, but said he had not examined the source documents and so was unable to comment on why the figures were so different. No analysis of the reasons for these variations was provided as part of the respondents' case. In these circumstances the learned trial Judge concluded that the respondents had not established that the financial information provided by Palmbay was misleading or deceptive. His Honour did find, however, that the respondents had established that Greyhound was irregular in its payments to Palmbay and that the respondents were not aware of that. As to the misrepresentation alleged that Greyhound was in a sound financial position, the learned Judge concluded that he did not have sufficient evidence upon which he could find that Greyhound was not in a sound financial position at the time the representations were made. His Honour went on to say in [68] of his reasons that:
"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."
His Honour did find, however, in [69] that 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 $126,000, was made by Mr Couper on behalf of Palmbay. It was also found that this was untrue, as Mr Couper knew. His Honour found that this constituted misleading or deceptive conduct by Palmbay in contravention of s 52 of the Trade Practices Act 1974. It was also found that Mr Couper, as the author of the fax, was knowingly concerned in this misleading or deceptive conduct and was involved in the contravention for the purposes of s 75B and s 82 of the Trade Practices Act. As his Honour correctly noted in [70], causation for the purposes of s 82 of the Trade Practices Act is to be determined in a practical or common‑sense way: Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514. The learned Judge correctly held that, if a material representation is likely to induce the person to whom it is made to enter into a contract and the person enters into the contract, a fair inference arises that the representation operated as an inducement: Gould v Vaggelas (1985) 157 CLR 215.
His Honour went on to find that the representation about the receipt of the valuations was made as part of the negotiations for the sale of the business. It was made to influence the respondents. The respondents accepted the truth of the representation and the learned Judge found that it induced the respondents to purchase the business.
The report of Mr J R Thompson, the business valuer who gave evidence at the trial, had been provided to the respondents' solicitors in the form of a letter dated 25 January 2002. The respondents did not have the benefit of this valuation at the time of the commencement of the proceedings in the Northam Local Court or the commencement of the action against them in the District Court on 12 July 2000. They had information which indicated to them that something was very wrong, but they were not aware of the two reasons why the business was not worth what they paid for it and the fact that the value of the business had been misrepresented to them by Mr Couper on behalf of Palmbay until they obtained the valuation from Mr Thompson. Mr Thompson valued the business as at 16 June 1999, the date of sale, at $35,000. Mr Thompson's evidence was accepted by the learned trial Judge who went on to conclude that the value of the business at the time of sale was $35,000. His Honour's conclusions were expressed as follows:
"76Induced by the misleading and deceptive conduct of [Palmbay] in representing that Mr Couper had received two valuations in writing, the lowest of which was $126,000, the [respondents] purchased the business. The price they agreed to pay was $100,000, of which they have paid $68,750.
77The appropriate measure of damages is the difference between the sum paid and the value of the business, namely, $33,750. The [respondents] 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.
78Interest on that sum at the rate of 6 per cent per annum from 29 June 1999 is $5976.
79Mr Couper was involved in [Palmbay's] misleading and deceptive conduct and is also liable in damages to the [respondent].
80For these reasons [Palmbay's] claim against the [respondents] does not succeed. The [respondents] are entitled to damages against [Palmbay] and Mr Couper in the sum of $40,303."
In my opinion, in the circumstances as I have related them, ground 1 fails because even if the learned trial Judge erred in finding that Palmbay did not enter judgment against Mr and Mrs Fowler in the Local Court at Northam, the conclusion by the trial Judge that the first appellant's pleas in pars 8.5, 8.6 and 8.8 of the further amended reply were not made out was clearly correct. Furthermore, ground 2 fails because all of the payments which were made by the respondents to Palmbay were made prior to the discovery of the falsity of the relevant representations upon which they succeeded.

Conclusion

In the result, it follows that the appeal should be dismissed. In my view, it is unnecessary to consider that the respondents' notice of contention which contended in ground 1 that the judgment in favour of the respondents at the trial should be affirmed because the representations regarding the financial performance of the business pleaded in pars 7 and 7B as read with pars 13.2, 13.3 and 13.5 of the defence and counterclaim were misleading and deceptive, or likely to mislead or deceive for the purpose of s 52 of the Trade Practices Act. Ground 2 contended that the representations pleaded in par 6.1 as read with pars 8 and 11 of the defence and counterclaim to the effect that Greyhound was a steady public company which had operated for many years was misleading or deceptive, or likely to mislead or deceive.

The respondents' contention was not that those grounds gave rise to any greater loss or damage by the respondents but simply provided further grounds on which the judgment in favour of the respondents should be affirmed. In the circumstances, I do not consider it necessary to reach a firm conclusion. It is sufficient to conclude, as I do, that the appeal should be dismissed and that the judgment of the learned trial Judge should be affirmed.
MURRAY J: I agree with Malcolm CJ that the appeal should be dismissed. I have nothing to add to his Honour's reasons for that conclusion.
WHEELER J: This is an appeal from a judgment in the District Court in which the learned trial judge dismissed a claim by the appellants for damages arising out of a contract for the sale of a business, and gave judgement for the respondents on their counterclaim against the appellants. I am in agreement with the conclusion of Malcolm CJ that the appeal should be dismissed, and I set out below my reasons for reaching that conclusion.

Background

By written agreement dated 16 June 1999 ("the Agreement"), the first appellant Palmbay Nominees Pty Ltd ACN 050 495 488 ("Palmbay") sold a coach and charter business carried on by Palmbay under the business name Shark Bay Coaches and Charters ("the business"). It was sold to the respondents Frederick Dexter Fowler ("Mr Fowler"), Pauline Erica Fowler ("Mrs Fowler") and Lorimar Southgate Transport Pty Ltd ACN 071 826 349 ("Lorimar"). The price payable by the respondents was $100,000.00 payable by one payment of $50,000.00 at settlement and the balance by 24 monthly payments of $2,083.33, the first payment being due on 29 July 1999. No plant, equipment or stock was included in the sale, the whole of the purchase price representing goodwill. Under a separate contract the respondents agreed to purchase a bus from the first appellant for $17,500.00. The respondents made the initial payment of $50,000.00 and a total of nine monthly payments of $2,083.33 but made no further payments.

The First Appellant's Claim at Trial

In its statement of claim, Palmbay pleaded as follows:

•that the respondents had wrongfully and in breach of the Agreement, failed to pay to the appellant instalments which it said were due in April, May and June 2000 (par 6);
•that by letter dated 5 May 2000, the respondents had repudiated the Agreement and refused any longer to be bound by it (par 7);
•that despite its repeated demands, the respondents failed or refused to pay any further sums by way of monthly instalments (par 8).
•that the respondent's actions amounted to a repudiation of the Agreement and that the appellant had accepted the repudiation either by its letter dated 11 July 2000 or alternatively by the issue and service of the Writ (pars 9 and 10).

It claimed the sum of $31,250.03, being the balance of instalments under the contract, as damages for the repudiation.

The Respondents' Defence and Counterclaim

The respondents denied that they had repudiated the Agreement. Rather, they contended that prior to entering into the Agreement, misrepresentations were made to them by Palmbay through its controller, the second appellant, Alexander James Couper ("Mr Couper"). They counterclaimed against Palmbay for damages for misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act ("the Act"), and also against Mr Couper on the ground that he was involved in Palmbay's contravention. Their claim involved three types of representations which they say were either false, misleading or deceptive: (1) representations as to the financial performance of the business; (2) representations as to the financial position of Greyhound Pioneer Pty Ltd ("Greyhound"); and (3) a representation that Palmbay had received valuations from two business brokers which valued the business at the lowest figure of $126,600.00.

The First Appellant's Reply and Defence to the Counterclaim

Palmbay and Mr Couper denied that either had engaged in any misleading or deceptive conduct. They contended that in any event, issue estoppel prevented the respondents pursuing the issues raised in their defence and counterclaim. This was because of an action commenced by Palmbay on 31 January 2000 in the Northam Local Court against Mr and Mrs Fowler for the outstanding December 1999 and January 2000 instalments, the subsequent course of that action, and certain payments made by Mr and Mrs Fowler.

The Trial Judge's Findings

At trial, the learned Judge found that the respondents failed to establish that either the financial information supplied to them by the appellants prior to purchasing the business or the appellants' representations as to Greyhound's financial position were misleading or deceptive. However, he found that a representation made by Mr Couper on behalf of Palmbay in a fax dated 3 June 1999 was untrue and that Mr Couper knew it was untrue. That representation was that Mr Couper had in writing two valuations of the business, the lowest of which was $126,600.00 His Honour found that the false representation was made as part of the negotiations for the sale of the business and induced the respondents to enter into the agreement to purchase the business. He found that Palmbay had engaged in deceptive and misleading conduct in contravention of s 52 of the Act and that Mr Couper, as author of the fax, was knowingly concerned in that conduct and so by virtue of s 75 and s 82 of the Act was involved in that contravention.
With regard to Palmbay's plea of issue estoppel, his Honour found that Palmbay's Local Court summons was for the instalments due in December 1999 and January 2000 and did not name Lorimar as a defendant. Mr and Mrs Fowler did not file a notice of intention to defend the Local Court action and paid the monies claimed under the summons after Mr Couper refused to withdraw the summons. His Honour found that Palmbay did not enter judgment against Mr and Mrs Fowler. His Honour found that the result of all the above was that Palmbay's pleas of issue estoppel and res judicata were not made out.
His Honour assessed the respondents' damages to be the difference between the price they had already paid for the business and its true value at the time of sale. The former amount was $68,750.00 and his Honour accepted the evidence of expert Mr James Thompson that the latter was $35,000.00. Together with the excess stamp duty paid by the respondents on the inflated sale price ($577.00) and interest since 29 June 1999 ($5,976.00), the respondents' total damages were assessed to be $40,303.00.

The Appellants' Grounds of Appeal

The appellants appeal to this Court on the following grounds:
Ground 1:
"The Learned Trial Judge erred in fact and in law in finding that the First Appellant did not enter judgement against the First Respondents in Northam Local Court Plaint No 49 of 2000 because that fact was conceded by the respondents in submissions filed by their Counsel dated 25 February 2002 ('the Local Court Judgement'). In failing to consider the effect of the Local Court Judgement, the Learned Trial Judge erred in law in finding that the First Appellants pleas at paragraphs 8.5, 8.6 and 8.8 [concerning res judicata, and issue estoppel] of the Further Amended Reply and Defence to Counterclaim were not made out."
Ground 2:
"The Learned Trial Judge erred in law when he failed to consider the following facts proven by the Appellants in the Court below that the First and Second Respondents:
A.had paid monies claimed by the First Appellant to it pursuant to the Local Court Judgement on or about 31 March 2000; and
B.made the instalments for February and March 2000 due under the agreement between the First Appellant and the Respondents dated 16 June 1999 ('the Agreement') and after the Respondents had operated the coach business ('the business') for approximately 9 months.
These matters of fact established as a matter of law that:
2.1there was no basis for any purported rescission of the Agreement founded on the occurrence of any event prior to 31 March 2000;
2.2the Respondents affirmed the Agreement by the payment of instalments due under the Agreement; and
2.3there was no reliance the Respondents on any representation made by the Second Appellant."
A further ground claiming that the learned trial Judge erred in law in finding that the respondents had relied upon the appellants' representation concerning the existence of two valuations of the business was abandoned at appeal.

The Respondents' Notice of Contention

The respondents filed a Notice of Contention, contending that the judgement of the learned trial Judge should be affirmed on two additional grounds. In my view, it is not necessary to deal with these issues, since I would dismiss the appeal in any event.

Ground 1 of the appeal

For reasons which were the subject of a minor dispute at the hearing of the appeal, the appellants did not adduce in evidence before the learned trial Judge the certified copy (or indeed any copy) of the default judgment entered in the Local Court at Northam in relation to Palmbay's summons of 31 January 2000. Before us, the appellants sought to remedy that defect. Since there was no dispute that the judgment had been in existence, and had been known by all parties to have been in existence, at the time of the hearing before his Honour, we gave leave for the filing of an affidavit proving that judgment by default for the sum of $4,166.66 and $75.70 costs was given for Palmbay on 21 February 2000 against Mr and Mrs Fowler. It is upon that judgment that the appellants' first ground of appeal rests.
The question of whether a judgment which is arrived at other than by judicial determination after trial, can give rise to a defence of res judicata, or issue estoppel, is the subject of conflicting observations in a number of authorities. It may be that the differing views expressed stem in part from the different circumstances in which such a judgment may be entered; eg, by consent, in default of appearance, in default of defence, after failure to comply with a springing order, and so on.
I am not aware of any authority directly binding upon this Court which concerns the effect of a judgment in default of appearance. The case most directly upon point is in my view New Brunswick Railway Co v British and French Trust Corporation [1939] AC 1, in which a question arose concerning the effect of a judgment obtained in default of appearance. Differing views were expressed concerning the operation of the principles of issue estoppel and res judicata in such a case. Lord Russell of Killowen and Lord Romer expressly refrained from any observations about the general application of those principles, holding only that they could not apply in any event, because of the nature of the issues in the second action (at 28, 41‑2). Lord Maugham LC and Lord Wright both appeared to accept that there would be a res judicata. Lord Maugham LC said (at 21):
"The true principle in such a case would seem to be that the defendant is estopped from setting up in a subsequent action a defence which was necessarily, and with complete precision, decided by the previous judgment; in other words, by res judicata in the accurate sense."
Lord Wright, at 38, described a default judgment as "conclusive of what it directly decides". Each of their Lordships considered that the nature of the second action was not such as to give rise to an estoppel, so those views may be considered to be obiter. Lord Thankerton agreed with all of their Lordships that the plea of estoppel in that case was "ill‑founded" (at 26).
Looking at other species of judgments which are not judgment "on the merits", issue estoppel has been held to arise in some circumstances; for example, in Linprint v Hexham Textiles (1991) 23 NSWLR 508, the Court of Appeal in New South Wales was prepared to apply the principle where one party had withdrawn during the course of a trial, so that its claim was dismissed in it absence; (Kirby P at 514 – 521, Clarke JA, with whom Samuels JA agreed, at 525 – 526). The general principles underlying issue estoppel were considered in that case to be appropriately applied to judgments generally, and not merely to those given after a hearing.
For reasons which will shortly appear, it is not necessary, in my view, to determine this issue. It is enough, for present purposes, to assume that a default judgment may give rise to a plea of issue estoppel in respect of those issues which are necessarily and precisely decided by it.
Even if a default judgment is capable of giving rise to a plea of res judicata, or an issue estoppel, there are two difficulties in the way of the appellants relying upon the judgment in the present case. The first difficulty concerns the position of Lorimar. Lorimar was not a party to the Local Court proceedings. The general principle is that both res judicata and issue estoppel apply only as between the parties to the proceedings which are said to give rise to that plea: Tedeschi v Legal Services Commission (1997) 43 NSWLR 20. Lorimar was, clearly, not a party to the Local Court proceedings.
In order to overcome that difficulty, the respondent relies upon the well‑known observation of Dixon J from Blair v Curran (1939) 62 CLR 454 at 531, in which his Honour notes that the effect of a judicial determination directly involving an issue of fact or law is that it disposes once and for all of the issue "so that it cannot afterwards be raised between the same parties and their privies". It is difficult to see how Lorimar could be considered to be a "privy" of Mr and Mrs Fowler. It was a company controlled by a third person, independently of the Fowlers. It entered into the agreement to purchase the business in a manner which made it jointly and severally liable for the obligations under the agreement. No argument before us was addressed to the question of how suing one party who jointly purchases a business together with others, could result in a determination which is binding upon those others. This ground of appeal could not, in my opinion, be made out as against Lorimar.
More broadly however, the difficulty with the res judicata/issue estoppel argument so far as all of the respondents are concerned, is that the default judgment creates an issue estoppel only in respect of those issues necessarily decided by the judgment. The appellants submit that "The bona fides and enforceability of the Agreement are foundational to the orders of the Local Court ... ". However, it appears to me that the respondents are correct in their somewhat narrower characterisation of the "issue" which was determined by that proceeding. The issue was whether, under the Agreement, the first appellant was entitled to payment of those instalments remaining unpaid pursuant to the Agreement. In the District Court proceedings the respondents did not dispute that, pursuant to the Agreement, the first appellant was entitled to claim payment for the balance of the instalments. However, by their defence, they admitted the first appellant's claim in that respect but pleaded a set off and raised a counterclaim for damages arising out of misrepresentations said to have been made by the appellants which were actionable either under the general law or the Act. The set off and counterclaim issues were not disposed of by the Local Court judgment
Alternatively however, under this ground of appeal, the appellants rely upon the broader principle enunciated in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. Reliance is placed particularly on the passage at 602, where Gibbs CJ, Mason and Aicken JJ said:
"There will be no estoppel unless it appears that the matter relied upon as the defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding."
The appellants assert that the matters raised by way of set off and counterclaim in the District Court were so relevant to the subject matter of the action in the Local Court that it would have been unreasonable for the respondents not to rely upon those matters in those proceedings. Even assuming the argument to be available in respect of a default judgment, I do not accept that submission for a number of reasons.
First, as I have already pointed out, Lorimar was not a party to the Local Court proceedings. It would have been unreasonable, in my view, to have expected Lorimar to apply to be joined, or to expect Mr and Mrs Fowler to apply to join Lorimar, in a matter where it was not a party, for the purpose of determining the set off and counterclaim issues.
Further, the matters raised by way of set off and counterclaim exceeded in value the ordinary jurisdictional limit of the Local Court. They could have been raised provisionally by way of counterclaim by virtue of s 34 of the Local Courts Act 1904. That relevantly provides:
"34.  Counterclaims
(1)  Where any defence or counterclaim of the defendant involves matter beyond the jurisdiction of the court, such defence or counterclaim shall not affect the competence or the duty of the court to dispose of the whole matter in controversy so far as relates to the demand of the plaintiff and the defence thereto, but, except as provided in subsection (2), no relief exceeding that which the court has jurisdiction to administer shall be given to the defendant upon any such counterclaim.
Provided always, that in such case it shall be lawful for the Supreme Court or a Judge thereof, if it is thought fit, on the application of any party to the proceeding, to order that the whole proceeding be transferred to the Supreme Court; and in such case the record in such proceeding shall be transmitted by the clerk to the Supreme Court; and the same shall thenceforth be continued and prosecuted in the Supreme Court as if it had been originally commenced therein.
(2)  The jurisdiction of a Local Court, in cases of counterclaim, shall not be excluded by reason –
(a)...
(b)that the counterclaim is for an amount of money exceeding the jurisdiction of the court, provided that the plaintiff does not object in writing, within the prescribed time, to the court giving relief exceeding that which the court would otherwise have jurisdiction to administer.
(3)  ...  "
It was open to the Fowlers to raise issues by way of set off and counterclaim even if they exceeded the monetary jurisdiction of the Local Court but, had they done so, the Local Court may not have been able to deal with those issues. By virtue of s 34(1) the Court could have disposed of the whole of the appellants' claim, but even if it had found in favour of the Fowlers in relation to their set off and counterclaim, it would only have had jurisdiction to grant them relief in the circumstances prescribed by s 34(2)(b). That is, it would have been up to the appellants, by objecting or failing to object in writing within the prescribed time, to determine whether or not the Local Court would have been able to grant the relief which the Fowlers ultimately sought in the District Court.
Had the appellants objected, the only course open to the respondents would have been to seek the transfer of the whole of the proceedings to a court having jurisdiction. The procedures in this Court and in the District Court are, for good reason, not as simple as those of the Local Court, and the costs incurred in this Court and in the District Court are consequently generally higher. While it is difficult to quantify any likely difference either in terms of time or cost, I would not describe as "unreasonable" a decision of parties, in a claim involving approximately $4,000, to refrain from raising issues which might have led to their being involved in litigation in a more complex and costly jurisdiction. I would apply here the observations of Brennan and Dawson JJ, concerning this form of estoppel, from Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 346:
"A plaintiff ... cannot be precluded from taking fresh proceedings merely because he could have and, if you will, should have counterclaimed on that cause of action in a forum chosen by the opposite party in proceedings in which the opposite party sued him."
It appears that the considerations to which I have referred above, concerning the limits of the jurisdiction of the Local Court, were not considerations which in fact exercised the minds of the Fowlers when they determined not to contest the Local Court proceedings. Rather, they took the view at that stage that they were still trying to make the business work, and they adopted something of a "wait and see" attitude.
I doubt that the question of "unreasonableness" is to be determined by reference solely to the actual subjective motions of the parties. That issue too need not be finally determined, since it would not have been open to the Fowlers to raise in the Local Court the issue of the misrepresentation in respect of which they were successful at trial.
The misrepresentation in respect of which the respondents succeeded was that concerning the alleged valuations. The evidence at trial was that it was only during the course of discovery, when no valuations from business brokers were discovered, that the respondents realised that they had been misled in that respect, and the claim in respect of that misrepresentation was added at a late stage in the proceedings. In this context, it should be noted that the evidence at trial was that the respondents had sought from Mr Couper at an earlier time copies of the alleged valuations, and that he had promised to provide them but had failed to do so; his Honour found that Mr Couper dishonestly promised to provide them, hoping that the respondents would not follow up that issue. In my view, it cannot be said that it was unreasonable of the respondents to fail to raise in the Local Court action, the issue of any false representation in relation to valuations by business brokers, when it is clear that at that stage they had no knowledge that the representations were false, and no reason to believe that the representations were false.
In relation to ground 1 therefore, it is my view that the existence of the Local Court judgment cannot give rise to any res judicata or issue estoppel in relation to the matters raised by the respondents by way of set off and counterclaim. The broader principle often referred to as an "Anshun" estoppel is inapplicable also.

Ground 2 of the appeal

In my view this ground can be dealt with very briefly. The appellants' outline of submission contains the proposition, which I am content to adopt as a correct summary for present purposes, that "the question of election does not arise until the party alleging that they were misled acquires the knowledge on which that party relies to prove a representation was false ... ". The question, which the appellants correctly identify, depends upon the respondents' knowledge at the time at which the Local Court proceedings were on foot and at the time at which the relevant payments were made. As I have noted above, whatever the precise state of the respondents' knowledge concerning either Greyhound, or the financial position of the business generally, it was not until a very late stage that the respondents became aware that they had been misled in relation to the alleged valuations by business brokers. The payments made by the respondent of instalments due under the Agreement were made at a time prior to any knowledge on the part of the respondents that they had been misled in that respect.