R a BATTINO Pty Ltd v William Nairn Pty Ltd

[2001] WADC 196

JURISDICTION     :   DISTRICT COURT OF WESTERN AUSTRALIA

IN CIVIL

LOCATION:   PERTH

CITATION:   R A BATTINO PTY LTD -v- WILLIAM NAIRN PTY LTD & ANOR [2001] WADC 196

CORAM:   MULLER DCJ

HEARD:   10 AUGUST 2001

DELIVERED          :   21 AUGUST 2001

FILE NO/S:   CIV 741 of 1995

BETWEEN:   R A BATTINO PTY LTD

Plaintiff

AND

WILLIAM NAIRN PTY LTD
First Defendant

WILLIAM NAIRN
Second Defendant

Catchwords:

Appeal from decision of Registrar dismissing application for further and better discovery of documents - Sale of radiological practice - Alleged representation as to future performance of the practice made by vendor in breach of s 52 Trade Practices Act - Valuation of practice at date of sale - Limitation of purchaser's claim for damages to period of 2 years following date of sale - Non disclosure by purchaser of financial records of practice outside 2 year period - Whether such records discoverable

Legislation:

Trade Practices Act, s 52 and s 82

Rules of the Supreme Court of Western Australia, O 26, r 7

Result:

Appeal dismissed

Representation:

Counsel:

Plaintiff:     Mr M R M George

First Defendant             :     Mr G J O'Hara

Second Defendant         :     Mr G J O'Hara

Solicitors:

Plaintiff:     Freehills

First Defendant             :     Kott Gunning

Second Defendant         :     Kott Gunning

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

Compagnie Financiere Du Pacifique v Peruvrian Guano Co [1882] 11 QBE 55

Kizbeau Pty Ltd v WG & B Pty Ltd & Anor (1995) 184 CLR 281

Mulley v Manifold (1959) 103 CLR 341

Case(s) also cited:

Phillips v Phillips (1879) 40 LT 815

1. MULLER DCJ:  This is an appeal against a decision of a registrar dismissing an application by the first and second defendants for further and better discovery by the plaintiff.  The first defendant was the proprietor of a radiological practice in Booragoon and the second defendant a director of the first defendant.  On 21 June 1994 the first defendant agreed to sell the radiological practice, together with all plant and equipment, furniture, fixtures, fittings and chattels, to the plaintiff.  According to his amended statement of claim the plaintiff asserted that before entering into the contract of sale he was shown the profit and loss statements of the practice for the years 1990‑1993 together with monthly profit and loss statements for the months July 1993‑December 1993.  According to these documents the average monthly turnover of the practice for the six months ending 31 December 1993 was $35,159.  In April 1994, before the agreement of sale was signed by the parties, the second defendant allegedly made a statement along the following lines to the plaintiff:

   "The practice was quiet, but things do pick up."

   In his statement of claim the plaintiff has asserted that it was implied in this representation that things would pick up within a reasonable period of time, such period of time being by 30 June 1996.  It was further alleged in the statement of claim that at the time the representation was made the second defendant knew the monthly turnover of the practice had diminished substantially from 31 January 1993 and that the representation referred to was misleading or deceptive or likely to mislead or deceive contrary to s 52 of the Trade Practices Act.  As a consequence of this representation it was alleged that the plaintiff was misled and/or deceived into believing there was no significant diminution in the turnover of the practice and was thereby induced to enter into the contract of sale.  The plaintiff went on to allege that, contrary to the alleged representation, the turnover of the business did not improve and that as a consequence of the breach of s 52 of the Trade Practices Act the plaintiff had suffered a loss by purchasing the practice for a sum greater than its true value.  This breach, it was alleged, gave rise to a claim for damages pursuant to s 82 of the Trade Practices Act.

2. While admitting that the plaintiff had been shown the documents reflecting the monthly turnover referred to earlier prior to the contract of sale being finalised, and agreeing that he did from time to time tell the plaintiff's director that the practice was quiet but things usually do pick up, the first and second defendants allege in their amended defence that the representation complained of induced the plaintiff to purchase the practice at a price substantially less than the amount at which the first defendant had originally been prepared to sell the practice.  The defendants denied that the business did not improve in turnover after April 1994 but allege that, if such improvement did not take place as alleged by the plaintiff, the downturn was caused or contributed to by a number of extraneous factors, such as local competition from practices with superior resources, which were known to the plaintiff at the time the contract of sale was entered into.  The defendants denied that they had contravened the Trade Practices Act as alleged in the statement of claim.

Particulars of representation

1. In the original statement of claim filed by the plaintiff the alleged representation, as pleaded, was not qualified by any limitation as to time. The defendants issued a summons pursuant to O 26, r 7 of the Rules of the Supreme Court requiring the plaintiff to discover a wide range of financial documents relating to the practice and covering the period 1 July 1994 to the date on which the application was made.  As I understand the situation this application came before a registrar of this Court but was adjourned.  Subsequent to the adjournment the plaintiff obtained leave to re‑amend the statement of claim by the insertion, inter alia, of the following significant amendment:

   "5AIt was implied in the representation pleaded in paragraph 5 above that things would pick up within a reasonable period of time, such period of time being by 30 June 1996."

   In their re‑amended defence the first and second defendants denied making the representation in question and asserted that, if the representation were made as alleged by the plaintiff, it was denied that the representation implied that things would pick up within a reasonable period of time and also that such reasonable period of time was limited to 30 June 1996.

2. Following these amendments to the pleadings the defendants' application for further and better discovery of all the financial records relating to the practice between 30 June 1994 and the date of the application was renewed.  While the plaintiff had apparently disclosed for inspection its financial records up to 30 June 1996, and had also made available for inspection selected documents relating to the financial affairs of the practice after 30 June 1996, the defendants claimed they were entitled to examine an additional wide range of documents relating to the financial affairs of the practice that came into existence after 30 June 1996.  The application for the discovery of the documents relating to the financial affairs of the practice after 30 June 1996 came before the Registrar and was dismissed.  It was this order against which an appeal was lodged.

The law

1. A party is entitled to discovery of documents that relate to the issues in any matter.  Relevance is established if it is shown that a document may either advance a party's own case or damage his opponent's case or, alternatively, lead to a course of enquiry which would do so.  Mulley v Manifold (1959) 103 CLR 341. In Compagnie Financiere Du Pacifique v Peruvrian Guano Co [1882] 11 QBE 55 at 63 Brett LJ said:

   "It seems to me that every document relates to the matters in question in the action, which not only would be evidence upon any issue, but also which, it is reasonable to suppose contains information which may ‑ not which must ‑ either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary.  I have put in the words 'either directly or indirectly' because, as it seems to me, a document can properly be said to contain information which may enable the party requiring the affidavit either to advance his own case or damage the case of his adversary, if it is a document which may fairly lead him to a train of inquiry, which may have either of these two consequences."

   The question I have to decide is whether the financial records of the practice after 30 June 1996 can be said to relate to the matters in question in the action.

Effect of amendment to statement of claim

1. If the statement of claim had not been amended in the manner I have already described I believe the defendants would have been entitled to discovery of the financial records of the plaintiff after 30 June 1996.  I say this because a representation of the nature alleged that was not qualified by time would bring into issue the financial performance of the practice after 30 June 1996.  The amendment to the statement of claim changes this.  The principal issue at trial will remain the question of what loss, if any, the plaintiff may have suffered as a result of the practice failing to pick up.  But for the amendment this issue would have included the period from the date of sale to the date of trial.  The effect of the amendment, however, is to restrict the period of the alleged loss.  As a consequence of the amendment the issue now is whether the plaintiff suffered any loss as a result of purchasing the business for the price he did up to but not beyond 30 June 1996.  The defendants have denied that the representation, if made, implied that things would pick up within a reasonable period of time or that such reasonable period of time is limited to 30 June 1996.  It has been submitted that the representation, relating as it does to the future turnover and profitability of the practice, cannot be qualified by an arbitrary time limit imposed by the plaintiff.  In determining the question of what loss, if any, the plaintiff may have suffered as a result of the alleged representation it was submitted by the defendants that the financial performance of the practice up to the trial remains a relevant issue and the plaintiff cannot avoid the obligation to give discovery of the financial performance of the practice by arbitrarily asserting that the representation was impliedly limited to a particular period of time.

2. But for one significant concession made by the plaintiff which I shall mention shortly I would otherwise have agreed with the defendants' submissions.  Questions as to what representation, if any, was made, the effect of that representation and whether the plaintiff suffered any loss, and, if so, over what period of time, would in the ordinary course of events have to be decided by the Court after hearing evidence.  The plaintiff's assertion in its statement of claim of the implied qualification as to the time the representation had any effect could not bind the defendants or the Court in any way.  The only way in which the financial performance of the company after June 1996 might become irrelevant is if the plaintiff admitted that the effects of any representation found to have been made were confined to the period of 24 months following the sale.  If that were the plaintiff's case the financial records of the practice after 30 June 1996 would not be relevant to the effect, if any, of the alleged representation.

3. As I understand the situation the plaintiff has made that concession.  In its outline of submissions the plaintiff asserts at par 4(b):

   "The Plaintiff submits that the issue in question is simply whether the representation implied that the practice would pick up prior to 30 June 1996 or not.  If the Court agrees then the claim proceeds, if not, the claim fails…"

   By limiting the issues in this way the plaintiff must be taken to have admitted that the representation to the effect that the practice would pick up was restricted to the period between the date of sale and 30 June 1996.  If, in endeavouring to prove its claim, it cannot go outside that period it follows that the financial records of the practice after 30 June 1996 are not relevant to this issue in the action.

4. Notwithstanding the limitation placed by the plaintiff on the period of time during which the alleged representation might reasonably be supposed to have operated, counsel for the first and second defendants submitted that discovery of the financial documents sought after June 1996 was relevant to another central issue in the case.  At the hearing of the appeal the parties seemed to agree there are two distinct issues to be considered: first, the true value of the practice at the time of sale, and second, whether the plaintiff was induced to pay more for the practice than its true value by the representation allegedly made by the second defendant as vendor.  In considering the second of these issues and deciding whether the alleged representation that the practice was quiet but likely to pick up the Court will, by virtue of par 5A of the re‑amended Statement of claim, be confined to the performance of the practice during the period between the date of sale and 30 June 1996.  As I understand the situation counsel for the first and second defendants does not take issue with this proposition.  What is submitted, however, is that in considering the first issue relating to the true value of the practice as at the date of sale the subsequent performance of the practice, both before and after 30 June 1996, will have to be examined and that no accurate valuation is possible without a full disclosure of the documents now sought by the first and second defendants.  If, for example, the trading figures of the practice revealed that the earnings of the practice improved substantially over a period of time, counsel for the defendants submitted that any increased earnings could be taken into account in assessing the true value of the practice when sold, although, in the end, it would be for the Court to determine whether any increase in the earnings of the practice was due to extraneous factors that were irrelevant to the issue.  In support of this submission counsel relied on the decision of the High Court in Kizbeau Pty Ltd v WG & B Pty Ltd & Anor (1995) 184 CLR 281 where the purchaser of the premises relied upon a false representation that the premises could be used for seminars and conferences only to find after the sale that this was precluded by town planning considerations except to the extent to which the planning authority allowed it to happen with limited numbers. The method of assessing damages for deceit inducing a person to enter a contract of purchase, which was described as closely analogous to an action for damages for breach of s 52 of the Trade Practices Act, was explained by the Court at p 291:

   "In an action for damages for deceit for inducing a person to enter a contract of purchase, which is an action that is closely analogous to an action for damages for breach of s 52, the courts have consistently held that the proper measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it Holmes v Jones (1907) 4 CLR 1962 at 1702‑1703; Toteff v Antonas (1952) 87 CLR 647 at 650‑651; Gould v Vaggelas (1985) 157 CLR 215 at 220, 255, 265. Nevertheless, although the value is assessed as at the date of acquisition, subsequent events may be looked at in so far as they illuminate the value of the thing as at that date Gould (1985) 157 CLR 215 at 220. A distinction is drawn, however, between subsequent events that arise from the nature or use of the thing itself and subsequent events that affect the value of the thing but arise from sources supervening upon or extraneous to the fraudulent inducement Potts v Miller (1940) 64 CLR 282 at 298; Gould (1985) 157 CLR 215 at 220. Events falling into the former category are admissible to prove the value of the thing, those falling into the latter category are inadmissible for that purpose. Thus, the takings of a business subsequent to purchase are generally admissible, not only to prove that a representation concerning the takings was false R v Lock (1926 26 SR (NSW) 272 at 273‑272; Selman v Minogue (1937) 37 SR (NSW) 280 at 282; McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR (NSW) 187 at 19‑194 but also to prove the true value of the business as at the date of purchase McAllister (1942) 42 SR (NSW) 187 at 193‑194; Gould (1985) 157 CLR 215 at 266. Even when some differences exists between the conditions under which the business was conducted before and after purchase, evidence of subsequent takings may be admissible, 'subject to due allowance being made for any differences in relevant conditions' McAllister (1942) 42 SR (NSW) 187 at 193. But if it is established that the decline in takings has been caused by business ineptitude Gould (1985) 157 CLR 215 at 267 or unexpected competition, evidence of subsequent takings is not admissible to prove the value of the business as at that date, events such as ineptitude and unexpected competition being regarded as supervening events."

   In my view the facts in that case are distinguishable from those of the present application.  Whereas in Kizbeau (supra) the alleged misrepresentation related to an existing fact, the representation relied upon in the present application was tantamount to an undertaking that business would improve over time.  Even if this distinction cannot or should not be drawn, however, I believe that the disclosure of the financial performance of the practice between the date of sale and 30 June 1996 is sufficient to illuminate the value of the practice as at the date of sale.  I do not believe that the financial performance of the practice up to the date of trial is relevant to the assessment that will have to be made.  The period between 30 June 1996 and the date of trial is too far removed from the date of sale to be of any real significance.  While the High Court has emphasised that subsequent events are relevant in assessing the value of a thing on the date it was sold I believe that a full disclosure of the trading records of the practice, including patient numbers and other relevant material, up to 30 June 1996 is adequate for that purpose.  It could be said, of course, that the figures provided by the purchaser up to June 1996 might be distorted and any marked upswing in the performance of the practice after 1996 would be relevant to the assessment of its value at the date of sale.  This argument, I believe, is a valid one.  It has, however, been addressed by the plaintiff.  In the affidavit of Matthew Robert Miller George sworn 1 August 2001 reference is made in par 6 and par 9 to the details of the income earned by the plaintiff from professional fees through the practice in the years ending 30 June 1996‑1998 inclusive.  While the defendants have not been provided with the source material from which these final figures have been extracted the information provided, when considered in conjunction with the financial documents up to June 1996, is, in my view, sufficient to assess the value of the practice as at the date of sale.

5. For these reasons I would dismiss the appeal.