Reiterer v Csenar; Csenar v Reiterer
[2005] VSC 12
•4 February 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 4734 of 2002
| WERNER REITERER and OTHERS | Plaintiffs |
| v | |
| ERICH CSENAR and TRUDY CSENAR | Defendants |
No. 5846 of 2002
| ERICH CSENAR and TRUDY CSENAR | Plaintiffs |
| v | |
| WERNER REITERER and OTHERS | Defendants |
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JUDGE: | HARPER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 4-6, 9-13, 16-20, 23-27, 30, 31 AUGUST; | |
DATE OF JUDGMENT: | 4 FEBRUARY 2005 | |
CASE MAY BE CITED AS: | REITERER & ORS v CSENAR & ANOR; CSENAR & ANOR v REITERER & ORS | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 12 | |
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Contract – Sale of building business – Written form of contract – Whether any collateral contract – Alleged breach of restraint of trade clause – Alleged failure to provide assistance – Whether vendors entitled to recover balance of purchase price.
Misleading and Deceptive Conduct – Alleged false representations about turnover and profitability of business and provision of assistance – Whether failure of business result of incompetence by purchasers – Prevailing conditions in building industry.
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APPEARANCES: | Counsel | Solicitors |
| For the Reiterers | Mr S. Pitt | Castle Law |
| For the Csenars | Mr N. Jones | McKean & Park |
TABLE [L1]OF CONTENTS
Introduction........................................................................................................................................ 1
The Background................................................................................................................................. 3
Breach of the contract of sale........................................................................................................... 5
Restraint of Trade.......................................................................................................................... 6
Failure to Provide Assistance or Advice................................................................................. 10
Breach of Copyright.................................................................................................................... 13
Collateral Contract........................................................................................................................... 14
Misleading and Deceptive Conduct............................................................................................. 14
Assignment of Twenty Profitable Jobs.................................................................................... 17
Use of Two Display Homes....................................................................................................... 18
Profitability of the Business....................................................................................................... 18
“The business turned over between $4m and $7m”................................................................ 20
“The net profit was between a minimum of 10% and 20% … on the turnover”................... 22
A “licence to print money”...................................................................................................... 34
The business was “highly profitable”...................................................................................... 35
Working Capital.......................................................................................................................... 37
The Representation.................................................................................................................. 37
Evidence About Working Capital............................................................................................ 39
Provision of Assistance and Training...................................................................................... 45
The representations – as pleaded.............................................................................................. 45
The representations – according to the evidence...................................................................... 48
Quoting Methodologies........................................................................................................... 50
Delay in construction.............................................................................................................. 57
Construction of homes............................................................................................................. 59
Compliance with the Domestic Building Contracts Act......................................................... 60
Contractors’ and Suppliers’ Rates........................................................................................... 67
Advice About Construction of Order Jobs............................................................................... 67
Competing for Trades and Suppliers....................................................................................... 68
Display Home.......................................................................................................................... 69
Bookkeeping System................................................................................................................. 69
Introduction to Suppliers......................................................................................................... 70
20 Knightsbridge Avenue........................................................................................................ 70
Negligent Representation............................................................................................................... 74
Damages............................................................................................................................................. 77
Conclusion......................................................................................................................................... 78
HIS HONOUR:
Introduction
The purchase of any small business is seldom free of risk. A business that constructs houses is peculiarly susceptible to the whims of the gods. But the risk to the purchaser can be reduced by thorough research into the state of the business and by a realistic and rigorous assessment of one’s capacity to take on the new responsibilities. Where the enterprise in contemplation is a “one man” business, its past success may have been in large part due to the individual attributes of the owner – his organisational skills, his relations with tradesmen and suppliers, and his willingness to expend whatever amounts of his own time and energy and expertise were necessary to ensure that the business ran smoothly and the customers were kept happy. These factors cannot be underestimated. While the vendor of such a business clearly must not mislead the purchaser about its nature and value, life’s uncertainties are such that there cannot in the absence of a carefully worded contractual term be any guarantee that the new owners will be successful. Even then, a vendor who sought to give, and a purchaser who was minded to accept, such a guarantee would alike probably be unwise; but in any event, that is not this case.
This litigation illustrates the perils facing new entrants into an unfamiliar business environment. The purchasers of such a “one man” (or, in this instance, two person) building business are in one camp. The vendors, who are in the opposite camp, are the man and wife who created the business and who, in the following 40 years or so, fashioned it into a source for them and their family of a very comfortable income. Then, almost two years after they sold it, it failed. The purchasers blame the vendors. In litigation marked by its lack of focus, the former claim from the latter the damages which, according to the purchasers, are owed by the vendors to them. The vendors, however, will have nothing of this. They say that the business was mismanaged. They attribute its financial and other problems entirely to the ineptitude of the purchasers. Not having been paid in full for the business, they claim the balance of the purchase monies.
It is the vendors who were first out of the blocks. In proceeding No. 5846 of 2002[1] Erich Csenar and his wife Trudy Csenar claim from Mr Werner Reiterer, his father (Mr Gottfried Reiterer Senior) and his brother (Mr Gottfried Reiterer Junior) (to whom I shall generally refer as “the Reiterers” or – because theirs was the proceeding that occupied almost all the time at trial - “the plaintiffs”) the sum of $55,476.74. This sum is made up of the balance of the purchase price for the business ($53,333.34), outstanding interest from February to July 2001 ($1,148.88) and default interest at the date of issue ($642.52) together with solicitors’ costs of $352.00. Default interest continues to accrue at 14.3% pa being $20.89 per day. This debt has been admitted, subject to a counterclaim made by the Reiterers that reproduces the allegations raised by them in a proceeding brought against Mr and Mrs Csenar (to whom I shall generally refer as “the Csenars” or “the defendants”).
[1]Originally issued in the County Court and transferred to this Court.
The proceeding instituted by the Reiterers is numbered 4734 of 2002. By their haphazardly-drawn statement of claim, the Reiterers assert against the Csenars a hodgepodge of interlocking causes of action: (a) misrepresentations which on 23 December 1999 induced the purchasers to enter into a written agreement for the sale of a (building) business; (b) misleading and deceptive conduct in breach of the Fair Trading Act 1985 and the Fair Trading Act 1999; (c) negligent representation; (d) breach of a collateral agreement said to be constituted by representations made between mid September 1998 and December 1999; and (e) breach of the contract of sale itself.
During the course of the trial it became apparent that the claims for misleading and deceptive conduct were those of the greatest substance. They will, accordingly, occupy the greater part of this judgment. First, however, I will examine the background to the current controversy. I will then deal briefly with the other claims before turning in greater detail to the substantive dispute.
The Background
The business in question, operating under the name “Erich Csenar Builders”, was started by Erich Csenar in 1963, about five years after he arrived in Australia from Austria. Over the following 34 years he, together with his wife Trudy, built the business from its modest beginnings until, by December 1998, he was constructing between 50 to 70 houses a year. The houses were built “to order” based on eight standard designs as varied by the customers. They were mainly brick veneer, ranging from 12 to 30 squares in size, with three or four bedrooms. The turnover of the business was between $4,000,000 to $7,000,000 per annum. Depending on the size and complexity of the particular house, Mr Csenar would take four to six or at the most seven months to complete each building. He had a loyal group of tradesmen whom he employed as subcontractors on a year-round basis. When the “order” business was quiet, he would ensure a steady supply of work by building “spec” homes on land owned by him and his wife. One of their regular subcontractors was Gottfried Reiterer Senior, a carpenter and joiner, who had also come to Australia from Austria. In addition to enjoying a longstanding professional relationship, the Reiterer and Csenar families were in frequent social contact.
In 1998, after some 34 years in the construction business, Mr Csenar turned his mind to scaling back. Selling the goodwill of the business while continuing in a modest way to complete a few selected jobs that would generate rental income for his retirement seemed to be an attractive option. But, of course, a purchaser had to be found. Mr Csenar held discussions with Werner Reiterer to that end. Werner expressed the Reiterers’ interest in acquiring that which the Csenars were prepared to sell. I am not sure that they comprehended exactly what, in legal terms, that was, namely: (a) the right to use the name under which Mr and Mrs Csenar traded; (b) the right to use their stock of standard house designs; (c) whatever goodwill could be transferred to the purchasers; and (d) an assignment of a number of uncompleted building contracts. There was not much that was tangible in this; rather, what was sold was the right to attempt to earn a profit in a particular way. At all events, as a result of the initial talks the Reiterers in September 1998 paid a deposit of $2,000. Later that month, on 22 September, Reiterer Holdings Pty Ltd was incorporated. Mr Reiterer Senior and his two sons were shareholders. Werner Reiterer was a director and secretary and Mr Reiterer Senior was the other director.
In October 1998, before any contract was signed, Werner left his employment as a senior account manager with Welpac Australia, a company forming part of the Smorgon Group, to start working with Mr Csenar. He anticipated that he, his father and brother, would own the Csenar business by the end of that year; and in the meantime he would learn as much as possible about it. His principal responsibility was that of a salesman operating out of one or other of the several display homes by which the business demonstrated its wares. Between October and December 1998 Gottfried Reiterer Junior and his father commenced studying part time at Holmesglen College to qualify as licensed builders. In January 1999 Mr Reiterer Senior obtained his licence. Mr Reiterer Junior required further experience in the building industry before he could qualify similarly. He therefore took long service leave from the Victoria Police on half pay and started to work as a labourer with Mr Csenar.
Meanwhile, negotiations for the purchase of the business continued. As time went on, however, these became – to the frustration of the Reiterers - more desultory. They were anxious to complete the purchase, while Mr Csenar was having some doubts about selling. The market was buoyant, not to say hyperactive, as building owners rushed to have jobs completed before, on 1 July 2000, the A New Tax System (Goods and Services Tax) Act 1999 came into operation. Mr Csenar may have been tempted to cash in on the building boom, and independently of that may also have had second thoughts about retirement.
None of this made the Reiterers any less keen to find their own niche in the market. In May 1999 Reiterer Holdings Pty Ltd, with the consent of Mr and Mrs Csenar, began in its own right to enter into contracts with home owners. Before then, jobs were taken on by that company under the licence and insurance of Mr Csenar, who signed the contracts with the clients.
Finally, and after relations between the parties had become strained, a deal was done. There is no dispute that on 23 December 1999 a Contract of Sale of Business (“the contract of sale”) conforming with Form 3 of the Estate Agents Act 1980 was signed by the Csenars as vendors and by the Reiterers as purchasers. The standard General Conditions applied save for clause 1 (3 day cooling off period) and Clause 4 (finance), both of which were struck through. The type of business was described in the particulars of sale as “Builder – Developer”. The purchase price was $113,200.00. The deposit of 10% included the $2,000.00 already paid by the Reiterers in September 1998.
Breach of the contract of sale
Forming part of the contract were “Special Conditions” that, among other things, provided terms for the payment of the balance of the purchase price over three years (SC 1); varied the restraint of trade clause found in the General Conditions (SC 2); provided for the lease by the Reiterers of a display home (SC 4); assigned to the purchasers the intellectual property relating to the business (SC 5); assigned, again to the purchasers, the 16 contracts listed in Schedule D of the agreement and imposed an obligation on the vendors to “ensure novation and the rights of the purchasers”[2] in respect of each contract “if required by the purchasers by notice to the vendors before the settlement date” (SC6.1); acknowledged that the Reiterers had entered into the 36 contracts listed in Schedule E of the contract and that they would bear the cost of construction of such jobs (SC 6.4); consented to the Csenars carrying on business as builders to complete the 24 contracts listed in Schedule F (SC 7.1); and provided for payment to Werner Reiterer of $30,000.00 and to Gottfried Reiterer Junior of $8,100.00 “in full and final settlement of all claims and demands … in connection with their working and being involved in the business hereby sold.” (SC 12). Special Condition 15 further provided that the contract would constitute “the entire agreement of the parties on the subject matter.”
[2]I quote the exact words of clause 6.1(b)
The Reiterers plead that pre-contractual representations made in the period September 1998 to December 1999 “[i]n order to induce [them] to execute the agreement”[3] also constitute terms of the contract of sale (paragraph 11 of the statement of claim). This allegation cannot be sustained either in law or in fact. I will later examine the impugned representations in detail. It is sufficient for the present to record that, to the extent that they were made at all, they were no more than “mere” representations. None of them were incorporated into the principal contract. One alleged representation – that the business was “a licence to print money”[4] - even if made, could not amount to anything more than “puffery” or sales talk. In my opinion, the terms of the contract of sale are those that appear in the document signed by the parties as at 23 December 1999, together with any that are implied by law. This is particularly so given the existence of Special Condition 15 (the “entire agreement” clause - to which, together with the alleged representations, I shall return).
[3]Statement of claim, para. 4.
[4]Ibid., para. 4(a)
In these circumstances, the only claims that in this case can form the basis of a breach of contract are those that are reflected in its written terms: namely, those relating to restraint of trade, failure to provide assistance and breach of copyright. I shall deal with each in turn.
Restraint of Trade
The Reiterers allege, by paragraph 20 of the statement of claim, breach by the Csenars of the restraint of trade clause pleaded in paragraph 19. The breach is said to have taken two forms. First, the Reiterers assert that, within six years of the settlement date and within a radius of 15km of the business address, the Csenars “built and/or sold” houses at six specified locations. In addition, Mr and Mrs Csenar not only advertised those properties for sale but also carried on business (under the name “E & T Csenar”) in the business premises adjoining those occupied by Reiterer Holdings: paragraph 20(a) of the statement of claim.
As noted above, the restraint of trade clause appearing in the general conditions was varied by the special conditions. General condition 10.1 provides:
“10.1The vendor must not be ‘involved in any way’ in a business of the same type within the time and in the radial distance from the premises specified in the particulars [of sale] without the prior written consent of the purchaser.
‘involved in any way’ includes being involved in the business alone or as a partner, manager, agent, clerk or assistant of any person or corporation, or as a director or a majority shareholder or shareholder who has a capacity to exercise substantial control of any corporation.”
The particulars of sale provide for a six year period and a 15km radial distance.
Special condition 2 qualifies general condition 10. It is appropriate that I set it out in full:
“2.1Notwithstanding anything contained in general condition 10 hereof the purchasers consent to the vendors engaging in the business of builders and developers for themselves, members of their families and for their companies, Ertru Nominees Pty Ltd and Erica Properties Pty Ltd but this is not to be taken that the vendors can be engaged by the public to do any work.
2.2Notwithstanding clause 2.1 hereof the purchasers hereby consent to the sale to the public by the vendors of up to twenty-five (25) per cent of any home units the construction of which was commenced by the vendors after the settlement date.
2.3Notwithstanding clause 2.1 hereof the purchasers consent to the vendors constructing a dwelling house on any land owned by them, either of them or their companies, Ertru Nominees Pty Ltd or Erica Properties Pty Ltd, at the date of this contract or which is subject of a contract to purchase on or before the date hereof and selling such land and dwelling house to the public for the purposes of identification the land referred to in this clause is as follows:
Lots 10 and 11 Ashley Court, Seville (the vendors may sub-divide these lots)
Lots 2-18 (both inclusive) Eileen Grove, Woori Yallock
Lots 3, 16, 17 and 19 Michael Lane and Lot 10 Paul Close, Mt Evelyn
Lot 2, 44 Carronvale Road, Mooroolbark
Any lots already sold (but not settled) but which may revert to the vendors for any reason whatsoever.”
The Reiterers complain that in breach of this clause houses were built by the Csenars at Lots 22, 23, 24 and 25 Eileen Grove, Woori Yallock, at Lot 1 Tony Place, Mooroolbark and at 470 Billanook Way, Chirnside Park. All construction was said to have occurred within the proscribed area: particulars (i) to (vi) to paragraph 20(a)). Yet the Reiterers did not adduce any evidence that Woori Yallock, Mooroolbark or Chirnside Park fell within the proscribed 15km radius. Indeed, the properties at Lot 1 Tony Place or at 470 Billanook Way were not mentioned anywhere in any evidence at all. Accordingly, the Reiterers have failed to establish these alleged breaches. In these circumstances, it is unnecessary for me to consider the scope of general condition 10 and special conditions 2.1 to 2.3 inclusive.
Complaint is also made by the Reiterers that the Csenars “actively advertised” these houses for sale by inviting the public to:
“Contact the Owners and Builder direct
Est 1963
GST included
Phone: 9736 1011”.
While photocopies of three undated pages from the Real Estate Weekly Magazine[5] showing the words set out above were put to Mr Csenar in cross examination,[6] the documents themselves were not tendered. Nor did the Reiterers or any witness on their behalf give evidence in relation to these advertisements. It is true that what little Mr Csenar said on the point was itself vague and equivocal and therefore gave little positive support to the vendors’ case. But the burden of proof on this issue lay squarely on the purchasers. In the absence of evidence about the location of these buildings, or the date when these advertisements were placed, the Reiterers have in my opinion failed to establish this allegation.
[5]CB.719 - 721
[6]T.1562-1567
The final complaint of the Reiterers under this head is, as we have seen, that after the agreement for the sale of the business was signed, the Csenars carried on under the name of “E & T Csenar” “this business” (that is, activities in competition with the Reiterers and in breach of the relevant restraint of trade provisions) in premises which adjoined those occupied by the purchasers themselves. Mr Werner Reiterer gave evidence that “immediately after” the contract of sale of business was entered into, the Csenars moved into the office next door. They there commenced what the Reiterers initially assumed to be nothing more than the completion of the outstanding projects listed in Schedule F of the contract. According to Werner Reiterer, however, the Csenars “essentially ended up continuing to trade”. The result, he asserted, was that the two businesses were in direct competition for clients, for tradesmen, and for suppliers.[7]
[7]T.183
There are two comments to make about this allegation. First, the Reiterers have failed to establish the exact nature of “this business”. This is particularly significant given the terms of special conditions 2.1 to 2.3. These, it will be remembered, permit the Csenars to engage in limited business as builders and developers. I am not satisfied that any “business” carried on by the Csenars went beyond the permission thus granted. Secondly, the Reiterers did not adduce any evidence to show that clients were attracted to the former rather than to the latter as a result of the Csenars occupying the adjacent premises. Although damages are not an element in an action for breach of contract, nominal damages only will be awarded in the absence of relevant evidence. In these circumstances, the Reiterers have in my view failed to establish this claim.
Failure to Provide Assistance or Advice
I shall next deal with the allegation by the Reiterers, as plaintiffs in proceeding No.4734 of 2002, that the Csenars failed to provide reasonable assistance and advice to them and failed to maintain the goodwill of the business. The particular allegations begin with the assertion that “[i]n order to induce the plaintiffs to execute the agreement the defendants represented to the plaintiffs that … the first defendant would provide the plaintiffs with assistance (including financial assistance if required) and advice in running and operating the business; [and] the first plaintiff [sic – read “defendant”] would provide the plaintiffs with the necessary assistance and training (including training the plaintiffs in the methodologies used by the first plaintiff [again, read “defendant”] to quote for jobs) to enable them to operate the business as a profitable venture.”[8]
[8]Paragraph 4(g) and (h). But there are two paragraphs numbered 4. That in question here is the first of them. I shall in this judgment refer to the second as “paragraph 4A”.
I am not satisfied on the balance of probabilities that specific representations about assistance and advice were ever made. On the contrary, I found the plaintiffs’ evidence on the issue entirely unconvincing. I examine this evidence in paragraph [114] below. But if any but the most general representations were made, their place in the plaintiffs’ contractual cause of action is entirely unclear. By paragraph 11 of the statement of claim they (along with all the other representations upon which the plaintiffs rely) are alleged to constitute terms of either the contract of sale or of a collateral agreement. Paragraph 12 then goes on to claim that “[i]n the premises the terms of the agreement or of the collateral agreement have been wrongfully breached”. By paragraph 16, however, it is alleged that “there were terms of the agreement that the defendants would exercise all reasonable care and attention when advising the plaintiffs with respect to the operation of the business including all matters relating to preparing quotations for building contracts.” Why this “all reasonable care and attention” requirement extended only to advice and did not also cover assistance is not explained. At all events, and notwithstanding this limitation on the obligation to be careful, the term as pleaded seems to be incompatible with the “assistance and advice” representations forming part of a collateral contract: the principal agreement could hardly contain a term that obligations imposed by a collateral arrangement would be discharged with “all reasonable care”.
Any representations about vendor assistance to the purchasers were therefore, on the plaintiffs’ own case, later subsumed into the contract of sale. Not only that, but the relevant term could only be oral or implied, since it is certainly not in the document in which the contract of sale is to be found. But there was no evidence of an oral term meeting this description; and even if there were, it would run up against clause 15 of the contract of sale.
Here is another among many examples of undisciplined draftmanship in the preparation of the statement of claim. In summary, it alleges - in relation to the provision of assistance - two pre-contractual representations which later became terms of the contract;[9] and another term, which apparently was never put as a separate representation, about exercising reasonable care when advising the plaintiffs.[10] But, in its written form, the contract of sale contains no such terms. That which it does contain was pleaded by paragraph 19(c) of the statement of claim. General condition 7.2 of that contract is the only relevant provision. It is in the following form:
“7.2The vendor must do whatever is reasonably necessary to introduce the purchaser to customers and suppliers connected with the business and give the purchaser reasonable assistance and advice about running the business during the assistance period.”
The “assistance period” is defined in the particulars of sale to be: “As mutually agreeable after settlement.” The evidence is that no such period was agreed. Indeed, the evidence from all parties is that by the time the contract of sale was signed on 23 December 1999, relations were at the least strained and, in the words of Mr Gottfried Reiterer Junior, “icy”.[11]
[9]Statement of claim, para. 4(g) and (f)
[10]Ibid, para. 16
[11]T.964
It is unclear what the parties had in mind when they agreed to general condition 7.2, at least in relation to the obligations to assist and advise. What is meant by giving “reasonable assistance and advice”? How extensive should it be? This is a contract, after all, for the sale of a business, not to engage Mr Csenar as a consultant. There must be a limit to the obligations imposed on a vendor in these circumstances. Moreover, there was no explicitly-stated obligation upon Erich Csenar actively to proffer advice to the purchasers; and the implication of such a term is not possible given that, far from being necessary to give effect to the contract, the tender of unwanted advice could well be seen as harmful interference. It was therefore for those assuming control of the business to take the initiative in seeking such advice as they perceived was needed during the assistance period. Yet the evidence called on behalf of the plaintiffs was bereft of any suggestion that any of them ever sought out Mr Csenar with a request for assistance of this kind. Still less did the evidence substantiate the proposition that, a request having been made, it was ignored.
Another problem is that the plaintiffs in their evidence concentrated on what they saw as inadequate instruction given to them by Mr Csenar on the subject of his so-called “quoting methodologies” – that is, the way in which Mr Csenar went about calculating how much he would quote for a particular job. This of course is a very important part of a builder’s skill. Mr Pitt of counsel on behalf of the Reiterers submits that advice about this topic would fall within general condition 7.2. The phrase “reasonable assistance and advice” is so broad that it would necessarily cover provision of assistance in such a basic aspect of the trade. But the obligation imposed by the clause in question applies only during “the assistance period” – and that was never agreed. It could not apply retrospectively to a pre-contractual period. This is particularly so of the allegation in paragraph 16 of the statement of claim. This pleads an (implied) term that, in advising the plaintiffs, the defendants would exercise all reasonable skill.
The result is that there was never any effective contractual obligation to provide assistance and advice. There was no agreed assistance period, or at least no evidence of it; and no request for assistance – or, at least, none that the Court was told about. The case of the Reiterers on this point is therefore without substance.
The alleged requirement that the Csenars maintain the goodwill of the business and carry it on in a businesslike manner finds its source in general condition 7.1. However, that condition confines these obligations “until settlement date”. Given that the settlement date and the date of the contract are one and the same, the clause has no practical effect. Certainly, it cannot apply to any pre-contractual period.
Finally, in relation to the allegation that the Csenars “essentially ‘starved’ the business of labour resources and in some instances materials”, the obvious point must be made that the Csenars cannot guarantee the continued services of the suppliers or tradesmen. The Csenars cannot be held liable for any independent decision by tradesmen or suppliers to cease, downgrade, or simply fail to cultivate their relationships with the Reiterers. In any event, there is no evidence, save of a general and unhelpful nature, that tradesmen or suppliers, by working for the Csenars, put themselves in a position from which they were unable to make themselves available to the Reiterers; and there is no evidence of any kind to suggest that the Csenars induced anyone to sever or downgrade their relationship with the members of that family. Indeed, the only evidence about relations with tradesmen came from witnesses called by the Csenars. They said, in effect, that they did for a time work for the Reiterers but ceased to do so because they were either not paid at all or not paid in a timely manner.
For all these reasons, the Reiterers have failed to make good this claim.
Breach of Copyright
As pleaded, the third breach of the contract is said to be the infringement of copyright in the plans which were sold with the business. The breach is said to be the construction of dwellings based on those plans. The houses in question are the subject of paragraph [18] above.
While it is said that the Reiterers have suffered loss and damage arising from the breach of copyright in that the Csenars have made profits from the use of the plans and drawings, no written particulars of that loss were given and no relevant evidence was called. It follows that this claim cannot be taken any further.
Collateral Contract
The Reiterers by their statement of claim plead that representations made to them during the period September 1998 to December 1999 constituted terms of a collateral agreement. This is another example of very poor draftsmanship. There is no attempt to discriminate between those representations that might possibly form part of a collateral contract and those that by no possibility could do so. Most of the alleged terms were inconsistent with the principal contract, which was of course the contact of sale. Others were - on such evidence as could be said, more or less, to relate to them - plainly insupportable. In any event, special condition 15 stood in the path of each of them. And most telling of all, counsel for the Reiterers - wisely – did not at trial press this aspect of the case. There is no substance in it.
Misleading and Deceptive Conduct
The trial was however troubled by ill-drawn claims said to arise out of the equally imprecisely formulated “representations” to which I briefly referred in paragraph [13] above. Indeed, it became apparent during the course of the hearing that the crux of the case brought by the Reiterers involved allegations of misleading and deceptive conduct constituted by making statements that are untrue. The Reiterers claim that these induced them to enter into the contract of sale. They also allege that they relied upon the impugned representations to arrange for Reiterer Holdings Pty Ltd to borrow money and arrange credit and to give personal guarantees as security. [12] A further claim is that, in reliance on the representations, they assumed responsibility for, and carried out the construction of, the order jobs assigned with the contract (the “Schedule D” jobs).[13] In addition, the plaintiffs (as they allege) relied - while preparing quotations for, and executing, the contracts in respect of the “Schedule E” jobs - on the representations concerning the “methodologies” employed by Mr Csenar for that purpose.[14] The representations are said to have been made in the period between September 1998 and December 1999.
[12]Statement of claim, para. 4A(b)
[13]Ibid, paragraph 4A(c)
[14]Ibid, paragraph 5
As drawn, the statement of claim alleged that the making of these representations constituted conduct in contravention of s.9 of the Fair Trading Act 1985 or s.11 of the Fair Trading Act 1999, or both.[15] I note that the pleading has transposed the relevant sections: presumably, it should read s.11 of the 1985 Act and s.9 of the 1999 Act. The point was not taken on behalf of the Csenars and the trial proceeded as if the correct sections were relied upon. The 1985 Act applied up to and including 17 May 1999. Thereafter, the 1999 Act was in force. The relevant provision nevertheless remained the same.
[15]Ibid, paragraph 9
In order to establish their claims for misleading and deceptive conduct the Reiterers must prove that the representations were made and, when they were made, were false. They must also show that they relied on them as an inducement to enter the contract of sale. It need not be the sole inducement; it is sufficient if the representations played but a minor part in the decision to purchase.[16] Moreover, in demonstrating reliance, the purchasers are assisted by the circumstance that they were parties to the contract of sale. Once it is established both that the representations were made and that they were calculated to bring the plaintiffs into a contractual relationship with the Csenars, it may be permissible to infer the formers’ reliance upon them. At the same time, of course, the inference may be rebutted.
[16]Gould & Anor v Vaggelas & Ors (1985) 157 CLR 215 at 236 per Wilson J.
One of the issues which arises on the facts of this case is the failure by the Reiterers to protect their own interests. In Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd & Ors[17] Gummow J observed that: “It is, of course, fundamental that s.52 [of the Trade Practices Act 1974] is not designed for the benefit of persons who fail, in the circumstances of the case, to take reasonable care of their own interests …”. I also have regard to the comments of Hill J in Argy & Anor v Blunts & Lane Cove Real Estate Pty Ltd & Ors: [18]
“A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant.”
[17](1987) 78 ALR 193 at 241
[18](1990) 94 ALR 719 at 744
The Reiterers face a number of other problems with their case. They are as follows:
(a)a number of the representations are clearly inconsistent with, or superseded by, the terms of the contract of sale;
(b)as pleaded, the representations about the performance of the business were representations about the past - they were not forecasts or predictions, yet the allegation that they were misrepresentations is based on the proposition that as events unfolded they did not come true;
(c)the evidence indicates that some of the representations were in fact true;
(d)most of the representations were made many months before the contract was executed or before finance was obtained, giving rise to substantial doubt that the Reiterers relied on them;
(e)in the intervening 14 month period the Reiterers were intimately involved both with the Csenar business and then from May 1999 with their own construction work, enabling them to form an independent judgment about the requirements and the performance of the business; this again raises the reliance issue; and
(f)even if established, it is not clear what loss, if any, resulted from the making of the representations.
Assignment of Twenty Profitable Jobs
I will deal first with those representations which are clearly untenable. There are a number of them; indeed, this case was notable for its tenuous grip on reality. I begin with a good example. It is alleged that the Csenars represented that they would assign to the Reiterers the rights to 20 building projects and that “these contracts would be profitable”.[19]
[19]Statement of claim, paragraph 4(e).
No one with any common sense would rely on a statement of this kind as if it were a guarantee. Every builder knows that, at the time of the signing of a building contract, its profitability cannot be guaranteed: there are too many imponderables. Yet if the representation upon which the plaintiffs in this case rely is not put forward as a guarantee, but merely as a statement of the maker’s belief that, all other things being equal, the jobs would return a profit, then it has not been adequately pleaded: the necessary qualifications are nowhere to be found in the statement of claim.
The representation was said to have been made in a handwritten document prepared by Trudy Csenar in September 1998. It refers to 20 jobs. I have already noted above that there were by the contract of sale 16 – not 20 - jobs listed in Schedule D. Anybody who could read could add them up. It is these that were assigned to the Reiterers. Notwithstanding anything that may have been said in September 1998, this is what the Reiterers agreed to when they executed that contract. It is therefore nonsensical to say that their signing of it was induced by a representation about 20 jobs; and at no stage during the trial was any complaint made about the “missing” four jobs. Nor was any evidence led to substantiate the allegation that the Schedule D jobs were represented as “profitable”. Trudy Csenar’s handwritten document of September 1998 is silent on the point.
In any event, profitable they were. At the trial, tables prepared by Mr Werner Reiterer were tendered on behalf of the Reiterers (exhibit P14). One of the tables in this exhibit concerned Schedule D jobs; the other, Schedule E. The former shows that the Schedule D contracts returned a total profit of $22,972.82. But the true position was even better. During cross examination of Mr Werner Reiterer, Mr Jones established that a number of these jobs were more profitable than indicated in the exhibit.[20] When the revised figures are substituted, the profit realised from the Schedule D jobs appears to be in the vicinity of $82,120.00. It is true that the figures here are gross, not net. No attempt was made to establish what the net figure was.
[20]See T.570-571, 585-586; Exhibit P21 at CB.1128; CB.1108D, 1120D
Use of Two Display Homes
The Reiterers allege that they were told that they would have the use of two display homes rent free for four months and thereafter at a fair rental.[21] One of these, however, was sold some six months before the contract of sale was executed. The Reiterers then knew that it had been sold. The result was that the contract for sale of the business provided for the lease by the purchasers of only one display home. They executed their contract with the Csenars nevertheless. It necessarily follows that they could not have been induced to enter that contract by a representation which they knew had been overtaken by events.
[21]Statement of claim, paragraph 4(f)
The other representation is the subject of special conditions 4.1 to 4.4. These clauses provide for the lease of a display home for one year with an option for a second. The rental is stated to be $866.66 per calendar month. Mr Csenar gave evidence that, within two weeks of signing the contract, the Reiterers decided not to continue with the lease. I accept that evidence. In these circumstances, this claim must be rejected.
Profitability of the Business
I now turn to more substantive allegations. The Reiterers allege that the Csenars represented that “the business turned over between $4,000,000 to $7,000,000 per year and that the net profit was between a minimum of 10% and 20% and above on the turnover and that the business was ‘a licence to print money’.“[22] It was also represented that the business was “highly profitable”.[23] The written representations are said to have been contained in a profit and loss statement for the year ended 30 June 1997. This was prepared by Russell Tregonning, certified practising accountant. Because the financial records of the Csenars’ business as shown to Reiterers were consistent with the profit and loss statement the representation was in effect “repeated” in and by those records.[24]
[22]Ibid, paragraph 4(a)
[23]Ibid, paragraph 4(b)
[24]Ibid, paragraphs (a)(ii) and (iii) of the particulars to paragraph 4
The oral representations were made during a meeting in August 1998 between Mr Csenar and Mr Werner Reiterer.[25] It is further claimed that, on or about 4 May 1999 during a conversation with Mr Gottfried Reiterer Junior, Mr Csenar said that “the business had never been as busy as it was at that time”. He thereby, so the plaintiffs submit, implied that the business was highly profitable.[26] But this submission may be dealt with instantly. On the facts as the Reiterers assert them to be, Mr Csenar implied no such thing; an increase in “business” does not necessarily equate with an increase in profit.
[25]Paragraph 2(a) of the further and better particulars
[26]Ibid, paragraph 2(k)
The financial records shown to the Reiterers consisted of handwritten ledgers kept by the Csenars setting out the income and expenditure for each job. They were available for the Reiterers to inspect throughout the period between January and May 1999. The latter were informed, however, that although they could inspect the documents at the Csenars’ business premises, no examination was to be permitted by anyone other than themselves. During conversations with Mr Csenar concerning those records it is said he put them forward as revealing (among other things) the actual profit generated by the business. It is also said that he described the profit and loss accounts prepared by Mr Tregonning as being for tax purposes. He stated that they “reflected the overall trading position of the [Csenars’] business interests which included the primary production business, income generated from rental property and the building business.” In particular, Mr Csenar stated that the expenses claimed in the profit and loss account for “project management” of $549,985 for 1997 and $548,724 for 1996 reflected the income which the Csenars had generated from the building business in those periods.[27]
[27]Paragraph 4 of the further and better particulars
The Reiterers allege that these representations were false and untrue. The business failed to generate a net profit of between a minimum of 10% and 20% and above on the turnover and was not a “licence to print money”: paragraph 6(a) of the statement of claim. Further, the business made a loss: paragraph 6(b). The Schedule D jobs made a net loss (paragraph 6(d)) as did the Schedule E jobs: paragraph 6(e). It is said that the Csenars retained the profitable jobs (they being listed in Schedule F of the contract of sale), while foisting the unprofitable ones (that is, the contracts identified in Schedules D and E) upon the Reiterers: paragraph 6(f). The figures provided were false and misleading (paragraph 6(k)) and the Csenars failed to disclose that the building business was subsidised by their land development business and or by rental income: paragraph 6(l).
We have here another example of the serious problems with the plaintiffs’ statement of claim. Although the representations upon which they rely were, as the pleading is drawn, clearly about historical fact, their falsity is allegedly established from the (alleged) circumstance that, after the Reiterers took over the business, the past did not translate into the future.
“The business turned over between $4m and $7m”
The business conducted by Mr and Mrs Csenar consisted of more than its building component. Properties were let to the rental market, generating a not insignificant proportion of total revenue.[28] In a small way, Erich and Trudy Csenar were also farmers. It is therefore necessary to determine for present purposes what aspect or aspects of the total business was or were included in the expression “turnover”. This is a point that seems to have befuddled those who drew the statement of claim. On the one hand, the representation about turnover is said to relate to “the business”; and this is defined in paragraph 1 of the statement of claim as the builder/developer business known as Erich Csenar Builders. On the other hand, the particulars state that Mr Csenar made it clear that the 1997 financial documents prepared by Mr Tregonning “reflected the overall trading position of the [Csenars’] business interests which included the primary production business, income generated from rental property and the building business”. And that indeed is exactly what those documents did. The “turnover” to which the records refer as being in the order of $4,000,000 to $7,000,000 per annum clearly relates to the totality of the business, including each of its components. In the year ended 30 June 1997, the figure was $6,507,788; in the previous year, $5,513,996. But even if one isolates the turnover of the building component, the figures still match the representation: $5,891,469 for 1996/97, and $4,942,484 for 1995/96.
[28]The profit and loss accounts for the year ended 30 June 1997 show that rent received in the previous twelve months amounted to $618,201 out of total income of $6,507,788.
It should again be emphasised that the representation itself is also expressed to relate to the historical turnover achieved by the business. While such a turnover might prove to be a foundation upon which the Reiterers could base an accurate assessment of the future performance of the business, it is not alleged that the Csenars represented that the business would in the future achieve a turnover of between $4,000,000 and $7,000,000. In any event, the vagaries of the building business, especially when under new and inexperienced management, are such that only the foolish would rely upon such a representation as more than indicative of the future.
I further observe that the allegation in paragraph 6 of the statement of claim, namely that the representations were false and untrue, does not include a specific plea that the turnover of the business was not between $4,000,000 and $7,000,000 per year. That the representation was made, however, is not in issue. Mr Csenar agreed during cross examination that he told the Reiterers that the turnover of the business was of that order.[29] The question then becomes whether this was true. As we have seen, the profit and loss accounts, assuming that they are accurate, demonstrate that it was. There is no reason to question their accuracy. It follows that the Csenars did not in this respect engage in misleading and deceptive conduct.
[29]T.1482
“The net profit was between a minimum of 10% and 20% … on the turnover”
A number of issues arise in relation to this alleged representation. First, there is an issue about what the representation was: although the pleading refers to a “net” profit, that profit is said to be “on the turnover”;[30] and Mr Werner Reiterer (who was the only person to whom the representation was made, and who is therefore the only member of the Reiterer family who can give evidence about it) agreed on several occasions during cross examination that the representation he said was made by Mr Csenar referred not to net but to gross profit.[31] Secondly, there is the issue of reliance: the representation, if made, was made many months before the execution of the contract of sale, and during that period was put through the most practical of tests. Thirdly, as with the representation about “turnover” being “between $4,000,000 and $7,000,000 per year”, so in this instance too: the relevant statement is pleaded as being one about an historical fact. Accordingly, it is not alleged in the statement of claim that the Csenars represented that the business would achieve a particular (or any) level of profitability in the future. It follows that the Reiterers must establish that the representation about past profits was false. If they fail to do so, then that is the end of the matter. And if, contrary to the above but according to some of the oral evidence, the representation did amount to a forecast or prediction about the future performance of the business, the Reiterers would need to show that at the time he said what he did, Mr Csenar did not believe the business could achieve that level of profit or was recklessly indifferent about the accuracy of his statement.[32]
[30]T.2126
[31]T.827, 838, 839
[32]Elders Trustee and Executor Co. Ltd v E G Reeves Pty Ltd & Ors (1987) 78 ALR 193 at 242
Mr Werner Reiterer gave the following evidence about the representation, which he said was made in August 1998 during his initial discussion with Mr Csenar:
“Q:What else was said about the financial performance of the business?
“A:Well, with - we discussed the profitability of the business and it was communicated to me that there was between ten to 20 per cent profit on the order housing component, which was the component that we were discussing regarding the sale.”[33]
[33]T.145
The representation thus recounted accords with that reproduced in the statement of claim only in that both are statements of historical fact. But a different slant was later put upon them. In relation to what was put to him when he was shown the 1997 accounts, Mr Reiterer participated in the following exchange:
“Q:Mr Reiterer, are you able to say what was said to you in relation to these documents?
“A:This document - when it was presented to us I asked, basically, what does all this mean? What figures relate to the building business and so forth. I was actually then informed by Mr Csenar that we could expect the income to be the project management fees that are shown there for '97 and '96 - yes, that's correct.
“Q:When you say that was the income of the building business, sorry, Mr Reiterer, can you just elaborate on that?
“A:Yes, those figures there would be the income that we would expect to take out of the business for ourselves.”
The witness said he was told these were consolidated accounts for all the Csenars’ business interests. They were prepared for taxation purposes. When Mr Reiterer queried the bottom line figures - which show a net loss for 1997 of $75,620.33 and a small net profit of $8,365.13 for 1996 - he said Mr Csenar explained that “these were prepared for taxation purposes, with all the write-offs - I believe that's the correct word - incorporated in that, but the true figure was those project management fees.”[34] He said he was told that these “profit figures” related to the building business only.[35] Later he reiterated that Mr Csenar represented the project management fee “as the amount that we could expect to take out of the business”.[36] The plaintiffs put this forward, together with the 1997 accounts, as a statement forming part of the representation upon which, for this aspect of their case, they rely.
[34]T.149
[35]T.150
[36]T.270
One of the problems with the evidence given by Mr Werner Reiterer is to identify exactly the nature of this representation. Not only does that evidence lack internal consistency, but what Mr Reiterer said about the representation in his evidence differs widely from the case as pleaded. On the one hand, for example, Mr Reiterer said he knew that the 1997 accounts were consolidated. The “project management” fee presumably therefore appeared to him to relate (as it undoubtedly did in fact) to the whole of the Csenar partnership. But then there is his reference to the “profit figures”, by which he (equally undoubtedly) meant the project management fee. According to Mr Reiterer, however, he was told that this fee related to the building component of the business; indeed, more particularly to its “order job” component - being that component which the Reiterers ultimately purchased. Consistently with this, Mr Reiterer also asserted, as noted above, that he was told that the fee represented the amount the Reiterers could “expect to take out of the business for ourselves”.
Mr Pitt, in submissions made on behalf of the Reiterers, tried bravely to turn this conundrum to his advantage. He submitted that Mr Csenar had a duty to qualify any statement he made about the fee so as to identify the part of the business to which it applied. This was not a point that occurred to the author of the statement of claim. It has not been pleaded. Moreover, a careful distinction must be drawn between on the one hand any statement that the fee represented what Mr Csenar and his wife had taken out of their overall business for the two years in question and, on the other, a statement about what the Reiterers in turn might expect to realise from that portion of the business which was the subject of the contract of sale. I am not at all confident that Mr Werner Reiterer grasped this distinction.
I am in any event satisfied that Mr Csenar did not tell the Reiterers that they could for the future expect to “take out of the business” an amount equivalent to the “project management” fee, or that that amount was a percentage of anything. As for the particular words allegedly spoken (“that the net profit was between a minimum of 10% and 20% and above on the turnover”), the evidence does not support a finding that they were uttered. Mr Csenar may have said that the amounts shown in the 1995/96 and 1996/97 accounts under that heading were his drawings, or part of them, for those years; but he denied saying anything to Mr Reiterer about the amount of profit generated by the business, still less by the “building” part of it. I accept this denial. Mr Csenar said he told Werner Reiterer that it was a “good” business; he also, he maintained, provided Werner with the accounts and the ledgers. That done, he left it for the Reiterers to make their own assessment of those records. He insisted on several occasions during the course of his evidence that he does not “work on percentage”.[37] The concept of profit as a percentage of anything was not one that exercised his mind when assessing his financial affairs. Accordingly, the representation that the business generated a net profit expressed in terms of percentage was not one that he would make. I accept that this is, and was, so. Mr Csenar gave the following evidence, again which I accept, during an exchange with me in the course of his cross examination:
[37]T.1482, 1484, 1486, 1686
“Q:Mr Csenar, you were asked whether you told Werner Reiterer or any of the other ... Reiterers, that the figure opposite “project management” on that page, the figure of $549,985 was the amount they could expect to earn from the business. Did you tell them that or not?
“A:I didn't say anything in the figures, no, no I left the book for them down here.”[38]
And later, in response to a question from Mr Pitt, Mr Csenar said:
“A:I didn't get asked, there was no conversation about the project management fees to be asked which way it is, I just let them have the ledgers, I let them have the ledgers because all my costing and things had been done with the accountant, so that project management question never did come up.
“Q:Mr Csenar, you had a discussion about these financial statements, didn't you, with the Reiterers?
“A:Not itemised, not figure to figure.”[39]
[145]Exhibit P5 at CB.504
I also note that Special Condition 6.2 of the contract of sale provides:
“The purchasers must and hereby indemnify the vendors and each of them against each loss or claim against the vendors arising from or in connection with any breach or non-performance whether before or after the settlement date by the purchasers of any provision of any contract under clause 6.1 hereof."[146]
[146]Exhibit P5 at CB.504
During cross examination,[147] it was put to Mr Csenar that he failed, within the limited time allowed, to forward to the Reiterers a default notice received by him from the owners of 20 Knightsbridge Avenue. The notice was dated 5 May 2000 (Exhibit P51). The result of this omission was that the contract was terminated. No evidence had previously been led by the Reiterers in relation to this document. Mr Csenar could not recall receiving it, a circumstance perhaps explained by the fact that it was addressed to “Erich Csenar, Office 2, 2-6 Birmingham Road, Mount Evelyn 3796”. That is the address occupied by the Reiterers.
[147]T.1537-1541, 1657-
An office copy of a letter dated 25 May 2000 from the former solicitors for the Csenars to the former solicitors for the Reiterers (Exhibit P52) has also been tendered. That letter states in part: “We refer to our letter dated 15th May 2000 and are anxious to have a response to the default notice served in respect of the house being constructed at [Lot 20] Knightsbridge Avenue, Nunawading.” The letter dated 15 May 2000 is not in evidence. The result is that there is no evidence about when Mr Csenar received the notice, save that it was before 15 May 2000.
There is another important point. No evidence was led by the Reiterers of any request by them to Mr Csenar for assistance in relation to the Knightsbridge Avenue property. The evidence of Mr Csenar was that he was asked by the Reiterers to attend a meeting they were to have with the owners some twelve months after the disagreement arose. This was at a time when the owners had engaged their own builder to complete the job. Mr Csenar refused the request for his attendance. He drew a distinction between requests for assistance in relation to the job, and assistance in relation to the settlement of builder/owner disputes.[148] Had the request been made of him at an earlier stage or in relation to construction matters he might have acceded to it.
[148]T.1657
In my opinion, Mr Csenar was entitled to take this position. Accepting his evidence about the request that he attend a meeting, the assistance thus sought does not fall within any category of assistance that he was – on any view - under any legal obligation to give. Again, neither Mr Csenar or his wife were under any applicable contractual obligation. Nor was any misleading or deceptive conduct involved. I repeat what I said in paragraph [111] above, namely that Mr Csenar cannot engage in misleading and deceptive conduct in relation to a promise to assist where at the time he made any relevant representation he genuinely intended to give effect to it. I have already noted that there is no evidence that Mr Csenar did not have the requisite state of mind.
Negligent Representation
Finally, the Reiterers claim that the Csenars owed them a duty to take care when making the representations and when providing them with information about the business: paragraph 13 of the statement of claim. It is alleged that the Csenars were negligent in this respect: paragraph 14. The particulars of this negligence are that the Csenars (a) failed to ensure the representations were accurate; (b) failed to take any proper steps to ascertain the truth of the representations; (c) made the representations without any proper investigation or verification of the information on which they were based; (d) failed to obtain all necessary and proper information in relation to the matters the subject of the representations; (e) failed to take any or any proper steps to correct the representations after becoming aware of their falsity; (f) made representations which they knew or ought to have known were false; and (g) failed to provide adequate information relevant to the business.
The Reiterers also allege that there were terms of “the agreement” that the Csenars would exercise all reasonable skill, care and attention when advising them with respect to the operation of the business including the preparation of the quotations for building contracts: paragraph 16 of the statement of claim. It is said that “wrongfully and in breach of the terms of the agreement” the Csenars failed to exercise such skill, care and attention: paragraph 17. The Reiterers thereby suffered loss: paragraph 18. This plea, however, is put as a breach of “the agreement”, not as a breach of a duty imposed by the law of tort. Given that “the agreement” is defined in paragraph 2 of the pleading as the written contract of sale, and given that nothing in that document speaks of a contractual obligation to exercise skill, care and attention, the case as pleaded cannot be made out.
The Csenars deny these allegations and raise contributory negligence: paragraphs 14 to 19 of their defence. They say that the Reiterers had ample opportunity to make their own enquiries and to inspect the books and records of the business. They were also legally represented in the purchase of the business. Finally, they were familiar with the business having each been employed by the Csenars prior to the sale.
In the nature of things, those who suffer loss seek to distance themselves from blame while attributing it to someone else - preferably a person or entity from whom compensation can be obtained. In the nature of things, lawyers tend to encourage such claimants when a practitioner/client relationship is in the offing, or has been established. Causes of action are conscripted into service, sometimes with little or no rigour in the selection process. So it was in this case; or that is how it appears to me.
The law, if not every legal practitioner, has consistently acknowledged the need for caution when dealing with claims based upon the negligent use of words. To discard the element of physical injury to a person or property as a prerequisite to the recovery of damages in negligence means that its effect of tending to ensure that compensable damage is restricted to that which is immediately consequential upon the tortious act also disappears; there then looms the spectre, described by Cardozo CJ in Ultramares Corp v Touche, [149] in a passage which has deservedly become immortal, as that of “liability in an indeterminate amount for an indeterminate time to an indeterminate class”.
[149]174 NE 441 at 444
A duty of care in giving advice or in the provision of information will not arise unless there is a relationship between adviser and advised sufficient to sustain that duty. The relationship between professional adviser and client or patient typically qualifies. That is because reliance on the part of the client, and knowledge on the part of the adviser of such reliance, is in those circumstances commonly easy to establish. But the requisite reliance, and the requisite knowledge, must nevertheless both be proved. So also the claimant must establish that the adviser failed to meet the appropriate standard: a general practitioner who disclaims the expertise of the specialist will not be required to meet the standards of the latter.
It follows that it is not sufficient for a plaintiff to show that he or she was owed a duty of care. The standard of care must also be established. So too must a breach of the duty, given the standard of care which the adviser must meet. And then there is loss; and, what is vital but often given insufficient attention, that loss must be proved to be a result of the breach.
The standard of proof is of course the balance of probabilities. This is lower than the criminal standard. It is nevertheless a real standard. If it is to be met, rigorous pre-trial attention must almost always, if not invariably, be given to the means by which each element of the cause of action is to be established. What exactly was the advice or information the subject of the allegation? In other words, what exactly did Mr Csenar say? What was the relationship between the advisor and the advised? In other words, was Mr Csenar speaking as (for example) a trained instructor in the art of preparing quotations; and was his audience totally ignorant on that subject, or did they have other means by which the necessary information or part of it had been or was being acquired? What effect did the advice have on the advised? And if they did indeed rely on it, what is the connection, if there is any, between that reliance and any subsequent loss?
The vendor/purchaser relationship is not one that of itself gives rise to a duty of care in the vendor to provide accurate information to the purchaser about the subject of the sale. I shall nevertheless assume in the plaintiffs’ favour that such a duty exists. There is, however, those other elements to which I have referred: that the defendants were in breach of their duty, and that their negligence resulted in loss. In this case, the plaintiffs have failed to satisfy me on the balance of probabilities that the defendants were careless in making such of the impugned representations as were made; and the plaintiffs have likewise failed to satisfy me that, where reliance must be shown, they have shown it. There has, moreover, been a total failure to link cause and effect. In other words, there is no evidence that any loss has been suffered by the plaintiffs as a result of the defendants’ breach of a duty owed by them to the plaintiffs.
The basis for these conclusions may conveniently be demonstrated by looking in turn at each of the representations on which the plaintiffs relied.[150] Those relating to the number of jobs assigned and the number of display homes made available were not relied upon because the truth was known before any reliance was possible. The alleged representations about the profitability of the business were (insofar as they concerned turnover and gross profit as a percentage of turnover) true. Otherwise, they were never made in either anything like the form alleged, or in anything like the terms that the evidence established. In particular, they related to the past, not the future; and in any event the Reiterers and their accountant relied not on anything said by the defendants but on their own estimates of future profitability. The representation about a licence to print money was incapable of being relied upon in any legally recognisable way. That to the effect that the business was highly profitable was true. No reliance was placed on any representation about working capital. As for what was said about assistance and training, there could be no negligence in making the representation – it was either a truthful reflection of the defendants’ intentions or it was not. Only in the execution of any assistance could there be any want of care. In any event, that was provided to the extent requested and without there being any evidence of carelessness. No relevant representations were made about the form of the contract adopted by the plaintiffs in their building activities. Assistance was not provided as requested in relation to the particular problem faced by the plaintiffs at 20 Knightsbridge Avenue, but there was no obligation on the defendants to do so.
[150]I here refer to and rely upon the analysis previously undertaken under the heading “Misleading and Deceptive Conduct”.
For these reasons, no cause of action in negligence is made out.
Damages
The only substantive claim for relief made by the plaintiffs in the statement of claim is for damages. These, whether for negligence or for breach of the Fair Trading Act, are to be assessed according to the principles of the law of tort.[151] Nominal damages are therefore only available to the extent that the relevant cause of action is in contract. For the reasons set out above, no breach of contract has been found.
[151]Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Likewise, I have concluded that the causes of action in negligence and under the Fair Trading Act are unsustainable. Even had the position been different, however, the question of proof of damage would have raised difficulties for the plaintiffs. Both in negligence and under the Fair Trading Act a claimant must demonstrate a causal link between the impugned conduct and any loss. Thus, s.159 of the Fair Trading Act 1999 provides that a person who suffers loss because of a contravention of a provision of this Act may recover the amount of the loss against a person involved in the contravention.
This fundamental point was largely ignored through the course of the evidence. For example, no attempt was made to show how any loss that might have been suffered by the plaintiffs could be distinguished from loss suffered by the entity (namely, Reiterer Holding Pty Ltd) under whose name the business was conducted. Nor was there any attempt to link a particular representation, said to be false, with any consequential loss. Another relevant example is the failure to make due allowance for “differences in relevant conditions”[152] as between the period when the business was operated by the Csenars and those which obtained following its sale. Yet it was common ground that the building industry was at that time subject to quite unusual trading conditions.
[152]Kizbeau Pty Ltd & Ors v W G & B Pty Ltd & Anor (1995) 184 CLR 281 at 291
Conclusion
Underpinning much of the Reiterers’ case is the notion that Mr Csenar would have an ongoing involvement in the business after the sale to such an extent that they did not need to consider for themselves how to manage it, or what the legislative requirements would be, or how they were to finance their activities. More fundamentally, the plaintiffs seek to recover the losses they have sustained following their acquisition of the business then known as Erich Csenar Builders. They had high expectations of it. Doubtless the vendors indicated to them that they shared those expectations. Of course the vendors also made specific statements about the business. These may have appeared to have in them the seeds of a number of causes of action. But one does not make out a case for damages against another unless the hard facts are there and unless those facts constitute one or more of the causes of action upon which reliance is placed. It is not sufficient to throw a body of allegations together, place legal tags on them, and hope that from the great mass of detail a sustainable proceeding will emerge. That, it seems to me, was the story of this case. For the reasons I have endeavoured to articulate, the attempt has failed. There must in these circumstances be judgment for the defendants in proceeding no. 4734 of 2002, and for the plaintiffs in proceeding no. 5846 of 2002. The losing parties must pay the costs in each case.
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