Sarker Trading Pty Ltd v Vanage Pty Limited

[2016] NSWDC 250

District Court

New South Wales

Medium Neutral Citation:	Sarker Trading Pty Ltd v Vanage Pty Limited [2016] NSWDC 250
Hearing dates:	3, 4, 5 and 8 August 2016 (written submissions)
Date of orders:	09 August 2016
Decision date:	09 August 2016
Jurisdiction:	Civil
Before:	P Taylor SC DCJ
Decision:	(1)   On the statement of claim, judgment in favour of the plaintiffs against the defendants in the sum of $105,653.19. (2)   Dismiss the cross-claim. (3)   Reserve all questions of costs.
Catchwords:	CONTRACT – purchase of a business - condition precedent – not fulfilled – rescission – deposits – forfeiture - penalty MISLEADING CONDUCT – representations about profit and rent - damages
Cases Cited:	Butt v M'Donald (1896) 7 QLJ 68 Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 246 ALR 448 Cutter v Powell (1795) 6 Term Rep 320; (1795) 101 ER 573 GPT Funds Management 2 Pty Limited v Footwear Trading Group Pty Ltd [2013] NSWDC 199 Havyn Pty Ltd v Webster [2005] NSWCA 182 Kennedy v Vercoe (1960) 105 CLR 521 Louinder v Leis (1982) 149 CLR 509 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573 93 GSP Pty Ltd v Advent 8 Pty Limited [2013] NSWDC 135
Category:	Principal judgment
Parties:	Sarker Trading Pty Ltd ACN 169184972 (first plaintiff/first cross-defendant) Ajit Chandra Sarker (second plaintiff/second cross-defendant) Vanage Pty Limited ACN 003500418 (first defendant/first cross-claimant) Sunil Arora (second defendant/second cross-claimant)
Representation:	Counsel: Dr A J Greinke (plaintiffs/cross-defendants) Ms N Dewan (defendants/cross-claimants)   Solicitors: Lodhia Lawyers (plaintiffs/cross-defendants) Juris Australia Lawyers (defendants/cross-claimants)
File Number(s):	2015/108517
Publication restriction:	None

Judgment

A. INTRODUCTION

1. Ajit Sarker worked casually for Sunil Arora at some of Mr Arora's Subway stores including at Subway Forestway. Mr Sarker decided to buy the Forestway business. Mr Sarker and Mr Arora entered a written Business Sale Agreement for the sale by Mr Arora to Mr Sarker of that Subway franchise for $95,000 exclusive of stock. The agreement was not completed after Mr Sarker purported to terminate the agreement for non-fulfilment of a condition precedent, although, a little more than $95,000 had been paid by Mr Sarker to Mr Arora, including a $10,000 deposit and a $75,000 security deposit. Mr Sarker seeks the return of those payments or alternatively, damages in the same amount resulting from misleading representations alleged to have been made by Mr Arora.

2. Mr Arora has a cross-claim for $40,606.57 for damages for breach of the agreement. He also claims an entitlement under the contract to retain the monies paid by Mr Sarker.

B. THE ISSUES

3. The issues for determination in this case can be listed as follows:

1. Was the contract subject to a condition precedent which not having been fulfilled, entitled Mr Sarker to rescind the agreement.

2. Is Mr Arora entitled to forfeit and retain all or any of the deposit, security deposit or other monies paid, whether by reason of breach of the Management Agreement by Mr Sarker or otherwise.

3. Has Mr Sarker established a cause of action for misleading conduct.

4. Is Mr Arora entitled to damages for losses after termination, and in what amount, which result from the alleged breach of the Management Agreement by Mr Sarker.

5. What is the quantum of damage suffered by Mr Sarker.

C. CREDIT

4. I found Mr Sarker to be a reliable witness, honestly trying to give his recollection, making concessions where appropriate and seeking to be careful with his evidence.

5. I was not so impressed with Mr Arora. Mr Arora was a chartered accountant, he owned a number of Subway stores and was clearly more commercially savvy than Mr Sarker. He also possessed a ready familiarity with the English language unlike Mr Sarker. But Mr Arora’s evidence was not given with the same amount of care for the truth. His first affidavit gave an account of events which differed significantly from that in his second affidavit. His first affidavit was a summary of events, which indicated a lack of care with his evidence. He gave no satisfactory explanation for inconsistencies between his two affidavits. Some of Mr Arora's affidavit evidence was corroborated by an affidavit by his senior employee, Amit Bhatia, but the similarity of their evidence, including Mr Bhatia’s recollection of recalling the detail of conversations of no particular significance to him, raised doubts about whether Mr Bhatia’s evidence was truly independent. Also, Mr Arora displayed an unwillingness to concede matters adverse to his interest.

6. Because of all these matters, I prefer generally the evidence of Mr Sarker.

D. THE CONDITION PRECEDENT

7. The condition precedent is provided in cl 3 of the agreement, which relevantly provides (errors in original):

"3. CONDITIONS PRECEDENT

3.1 Conditions

(i) the Buyer will be approved to enter into a franchise agreement with Subway;

(ii) the Buyer provides the Seller with written confirmation that Subway:

(i) has agreed to the sale of the Business to the Seller as contemplated in this Agreement; and

(ii) In the event that the Buyer is to be granted a new franchise agreement and instead of an assignment of the Franchise Agreement, has agreed to that assignment to the Seller.

The Buyer continues to have the rights to all profits and keeps operating the business as per the Management Agreement till the Franchise Agreement and the Lease (Sub-Lease) is transferred and/or assigned to the Buyer by Subway.

(a) Notwithstanding any other provision of this Agreement, the Parties agree that:

(i) If the Buyer receives the approval referred to in clause 3.1(a) [sic]; and

(ii) The Buyer subsequently decides not to enter into the Franchise Agreement,

then the Seller may, in its absolute discretion:

(iii) terminate this Agreement with one (1) day's written notice to the Buyer; and

(iv) keep the Deposit.

3.2   Satisfaction of Conditions

The Buyer must ensure that the Conditions are satisfied before the Completion Date."

8. There are a number of difficulties construing this clause. On the one hand, it might indicate that the buyer was, in cl 3.2, obliged to obtain the Subway approval and provide confirmation to the seller. On the other hand, this construction was not, in submissions, contended for by Mr Arora, (cf cl 6 of the cross-claim and its reference to cl 3.1 of the agreement). Rather, the parties both accepted that Mr Sarker had an obligation genuinely to attempt to do what was required of him to obtain approval including, in particular, genuinely attempting to pass the Subway test required of intending franchisees.

9. Divining the proper construction is not assisted by the apparent errors in the clause which refer to, "the sale of the Business to the Seller", the "assignment to the Seller", and the reference to Subway, "instead of an assignment…has agreed to that assignment".

10. Some guidance to the proper construction is provided by the terms of Mr Arora's franchise agreement with Subway, which was referred to in the agreement and annexed to it. Clause 9 of the franchise agreement provided:

"9. TRANSFER AND ASSIGNMENT OF THE RESTAURANT

a. You may only transfer the Restaurant with this Agreement and only with our prior written approval, as provided in this Paragraph 9. We will not unreasonably withhold consent to the transfer. You may transfer the Restaurant and this Agreement to a natural person or persons (not a corporation) provided: (i) you first offer, in writing, to sell the Restaurant to us on the same terms and conditions offered by a bona fide third party purchaser, we fail to accept the offer within thirty (30) days, and we approve your contract with the purchaser; (ii) each purchaser has a satisfactory credit rating, and is of good moral character; (iii) each purchaser received a passing score on our standardised test (if not already a SUBWAY franchisee) and attended and successfully completed our training programme or agrees to attend our first available training programme after the sale (and then must successfully complete the training programme or will be in default under the Franchise Agreement); (iv) you pay in full all money you owe us, our Affiliates, and the Franchisee advertising fund, for all your SUBWAY restaurants and you are not otherwise in default under this Agreement; (v) you pay us $7,500 (plus any GST and other taxes) for our legal, accounting, training, and other expenses we incur in connection with the transfer; (v) you transfer the Operations Manual for the Restaurant to the purchaser on the date of transfer; and (vii) at or prior to the time of transfer you bring the Restaurant into full compliance with our then current standards set forth in the Operations Manual. All transfer documents will be in English in a form reasonably satisfactory to us…"

11. Thus, the franchise agreement lists a number of matters with which Mr Arora was obliged to do:

1. Give Subway a right of first refusal.

2. Obtain Subway's approval to the contract.

3. Be current with financial obligations to Subway.

4. Pay Subway $7,500 plus GST.

12. There was no evidence of compliance with these matters. Each required conduct by Mr Arora not by Mr Sarker: Mr Sarker could not make an offer to Subway to sell the restaurant to it, nor could he, reasonably, render Mr Arora compliant with Mr Arora's financial obligations to Subway. Since these matters are requirements for approval of Mr Sarker, they indicate (along with the heading “CONDITIONS PRECEDENT”) that the obligation imposed in cl 3.2 must be given a limited meaning: that it was in the nature of a sunset clause requiring the time for approval to be by the completion date otherwise the agreement would come to an end.

13. However, the completion date was not a specified date. It is unhelpfully defined as a date completion occurs. Where a contract does not specify a date for performance of an obligation such as approval or completion, a reasonable time is inferred.

14. Had a reasonable time expired for the obtaining of approval? The Business Sale Agreement specified in cl 4:

"4. COMPLETION

4.1 Time and place

The Buyer and Seller will make an application to Subway to transfer the business, Franchise Agreement and the Sub Lease by the end of July 2014 or earlier.

Completion will take place on or around 10 (ten) days of successful completion of training at Subway Head Office in Brisbane or such other place, time and date as agreed by the parties in writing."

15. July 2014 is the month following entry into the agreement which occurred on or about 3 June 2014. However, neither party made any application to Subway, nor was any training arranged, commenced or completed, even though Mr Arora's franchise agreement with Subway required successful completion of training as a condition of approval of an assignment to a new franchisee.

16. The reference to July 2014 in cl 4 indicated that perhaps a maximum period of two months was contemplated before training was completed, with Subway approval and completion of the sale to occur shortly after that. Certainly any reasonable period for approval had expired by the time Mr Sarker took the Subway test and obtained his result in January 2015.

17. In addition, as indicated above, cl 9(a) of the franchise agreement required the fulfilment of seven conditions in order to obtain approval of the transfer. There was no evidence of the fulfilment of any of these conditions, or even of any steps being taken to fulfil the conditions save one, that the purchaser, Mr Sarker, had attempted to receive "a passing score on [Subway’s] standardised test".

18. On 14 January 2015, Mr Sarker was advised by Subway about his test results as follows:

"Hi Ajit,

I wish to confirm that the Subway/Wonderlic Skills Tests results have today been received from our Brisbane office and I regret to advise that you Failed to pass both of the Skills Tests completed at our Sydney Markets Plaza office yesterday.

Please contact me by email if you would like to accept the option to Re-sit the tests by completing a second set of Wonderlic Skills Test papers. These are similar tests in Verbal and Quantitative skills of 20 minutes duration each. Bookings to complete the Re-Test are required via email to myself or Tony LoRusso, I am available to do these re-tests on Tuesdays, Wednesdays or Thursdays each week for the next month.

Please note that if you are unsuccessful in passing the re-test Skills Tests you are then excluded from proceeding to apply for a franchise for the next 12 months. In that case, after 12 months you may re-apply to complete the Wonderlic Tests again. In the meantime if you have any questions related to this process, kindly send me an email.

Regards,

Graham MacDonald

Business Consultant :: Leasing & Development Manager

Subway Development of Sydney Pty Ltd

…"

19. Accordingly, there was a non-fulfilment of the condition precedent of approval by Subway. Two conditions for approval were unsatisfied: Mr Sarker had failed the test and no training had been organised or completed. There was no evidence of satisfaction of any of the other conditions of approval and a reasonable time for approval and completion had long since lapsed.

20. Generally, a party wishing to rely on the passage of time to terminate an agreement gives a notice to the other party, thereby making time of the essence for fulfilment of the relevant condition. But this requirement, this rule requiring notice in order to make time of the essence or to establish the lapse of a reasonable time is not absolute. The notice is proof of the lapse of a reasonable time, but it can be proved in other ways (see Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at 302 per Barwick CJ and Jacobs J and Louinder v Leis (1982) 149 CLR 509 at 526 per Mason J). Whilst these passages concern proof of a breach by the passage of time, the same principle of a notice evidencing the passage of a reasonable time would seem to be applicable to a condition precedent. No argument was put that a reasonable time had not elapsed by the time the results of the test were received. Rather, Mr Arora submitted that Mr Sarker was obliged to make a genuine attempt to pass the test and had failed to do so.

21. The existence of this implied obligation on Mr Sarker genuinely to attempt to pass the test is not in doubt. He was obliged to do, "whatever might reasonably be required of him to enable the vendor to obtain…consent" (Kennedy v Vercoe (1960) 105 CLR 521 at 526, see also Butt v M'Donald (1896) 7 QLJ 68, 70 and 71). Here that included sitting the test and genuinely attempting to pass it. Mr Sarker accepted the existence of this obligation.

22. The real issue then was whether Mr Sarker had made a genuine attempt to pass the test. He gave evidence that he had. He said he found the skills test to be very difficult, so much so that there was no point in trying again because he knew he would not pass it. He said he was able only to get through about half the exam in the time allowed.

23. Mr Sarker was challenged on his evidence of a genuine attempt to pass the test, but he adhered to his earlier evidence. There was nothing about the content of his answers or his demeanour that caused me to doubt the honesty of his evidence, that he genuinely attempted to pass the test.

24. Mr Arora relied on a number of matters to submit that Mr Sarker’s evidence should be rejected and that he did not genuinely attempt to pass the test.

25. First, Mr Arora submitted that Mr Sarker did not sit the exam promptly. That is true. Mr Sarker gave evidence that Mr Arora told him to take his time with the test and that his need to sit the test only arose because Anila Bisharat, a prospective purchaser of the Forestway business from Mr Sarker and Mr Arora, had failed the test in approximately late 2014. Thereafter Mr Arora requested Mr Sarker to sit the test.

26. I accept Mr Sarker's evidence of the reasons why his sitting of the exam did not occur until January 2015. His account is supported by Ms Bisharat contracting to buy the business and sitting the test, and the absence of any documents indicating that Mr Arora pressed Mr Sarker to sit the exam earlier. In other aspects of the transaction, Mr Arora was keen to have formalities of the agreement recorded. The terms of the contract were documented as was the payment of a deposit by Ms Bisharat. In this context, the absence of documentary evidence of requests to sit the exam was significant, and I was not satisfied that Mr Arora pressed Mr Sarker to sit the exam earlier than he did.

27. It follows that the failure of Mr Sarker to sit the exam earlier than some seven and a half months after entering the contract does not indicate the lack of a genuine attempt by Mr Sarker to pass the exam.

28. Secondly, Mr Arora submitted that Mr Sarker wanted to give back the business after about two weeks, a matter conceded by Mr Sarker. This dissatisfaction by Mr Sarker with the business was the genesis of attempts made by Mr Sarker and Mr Arora to sell the business to Ms Bisharat. But Mr Sarker continued to work diligently in the business for the next seven months. While his initial dissatisfaction with the business might provide some motive for an unsuccessful test result, the argument loses its force when account is taken of the circumstance of Mr Sarker’s sustained willingness over several months to operate the business diligently.

29. Thirdly, Mr Arora submitted that Mr Sarker was not a person with a limited educational background, and that the exam was "basic". Mr Sarker had passed a TAFE Business Manager course and a commercial cookery course. However, the details of the contents of those courses were not in evidence, nor were the particular questions or Mr Sarker's answers in the Subway test. No reason was offered as to why Mr Arora could not have obtained that evidence by subpoena.

30. The Subway test was described in some documentary evidence. It required skills in, "Math Computation and Quantitative Evaluation", including multiplication and division of, "proper and improper fractions and mixed numbers", and fractional units of money, time, imperial and metric units of length, weight and distance and also, "computation of rates, proportions and percentages", interpretation of graphs and comparison of fractional magnitudes. It involved algebra and geometry including solving of equations and computations of, "lengths, angles, areas and volumes of plane and solid geometric figures". It also involved the use of literature, recognition of unfamiliar words in context, identifying grammar, including completing and identifying errors in complex sentence construction.

31. While this specification of the contents of the Subway test might not clearly demonstrate the complexity in the test, it also does not demonstrate that it was a basic exam. It was apparent from Mr Sarker's evidence that the English language was a challenge for him. The evidence concerning the contents of the exam indicated that it might involve complex questions about maths and English that would likely not have been done in a TAFE business course or a TAFE course of commercial cookery. I was not persuaded that Mr Sarker was readily able to pass the Subway exam if he made a genuine attempt.

32. Nor do I think that the obligation on Mr Sarker under the contract reasonably required him to re-sit the exam. He had had seven months to prepare. He said he was not able to complete even half the exam in the time allowed. He believed that to re-sit the test would for him have been a waste of time because of his inability to complete it on the first occasion. I accept this evidence.

33. In these circumstances, the conditions for approval of the transfer of the Subway franchise business to Mr Sarker were not satisfied, were never likely to be satisfied and a reasonable time had passed for their satisfaction. Mr Sarker was not in breach of the implied obligation in the contract. Both parties were entitled to rely on cl 3 to rescind the contract for non-fulfilment of a condition precedent (see generally Cutter v Powell (1795) 6 Term Rep 320; (1795) 101 ER 573) and Mr Sarker did so.

E. DEPOSITS AND THE MANAGEMENT AGREEMENT

34. Under an executory contract for the sale of property, in this case a Subway business, a seller is generally not entitled to retain any part of the price received and also retain the property to be transferred. Entitlement to retain the money paid is conditional upon the completion of the contract: see McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, 477.

35. Mr Arora would only be entitled to retain the money paid if he was entitled to hold it as against damages he suffered by reason of Mr Sarker's breach of contract or because the money paid was a deposit. The first reason is not applicable, that is the claim for damages, as Mr Arora makes a separate claim for damages seeking an amount additional to the monies paid by Mr Sarker for the purchase of the business.

36. The second possible reason for retaining the funds was that the monies paid were a deposit. A deposit is an earnest of performance (see Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 246 ALR 448 at [25]-[27]). And as Santow JA explained in Havyn Pty Ltd v Webster [2005] NSWCA 182 at [131]-[132], a deposit can be retained by a vendor in circumstances of breach (in the absence of an express provision) except if forfeiture of the deposit is penal.

37. The Privy Council in Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573 determined that retention of a 10% deposit was not penal but that (at 582), “a deposit of 25 per cent constitutes an unreasonable sum and is not therefore a true deposit, it must be repaid as a whole.”

38. Here the initial deposit was $10,000 of a purchase price of $95,000, a deposit of about 10.5%. Mr Arora did not answer the submission that being more than 10% meant that the deposit was penal and must be repaid. Either by reason of de minimus, the difference being trifling, or by reason that $10,000 is only a little more than 10% and was nevertheless a reasonable sum in the circumstances, it might be argued that $10,000 represented a reasonable deposit. Such an argument would have no application to the security deposit.

39. However, any such argument could not arise in any event because the contract was rescinded by Mr Sarker for non-fulfilment of a condition precedent, and not by Mr Arora for breach. In that event, the whole of the monies must be refunded.

40. In relation to the deposit, cl 9 of the contract provided:

"9. DEPOSIT

9.1 Payment of Deposit

Immediately upon the execution of this Agreement, the Buyer must pay the Seller, a deposit to the value of $10,000 towards this sale agreement and also a security deposit of $75,000 towards the performance of the Management Agreement at the Handover date. At that time, the Seller will hand-over the business to the Buyer to manage the same in its entirety as per the Management Agreement. At the time of transfer, the security deposit of $75,000 will be transferred towards the settlement of this Agreement to sell.

9.2 Release on Buyer default

If, before completion:

(a) the Buyer breaches this Agreement and/or the Management agreement which is a part of this Sale Agreement; and

(b) that breach allows the Seller to terminate this Agreement; and

(c) the Seller terminates this Agreement,

the Deposit will vest in the Seller.

9.3 Release on Seller default

If the Seller repudiates this Agreement before Completion or this Agreement is terminated other than in the circumstances set out in clause 9.3 the Deposit Holder must pay the Deposit to the Buyer."

41. Clause 9.3 refers to circumstances other than as, "set out in clause 9.3". This must, I think, be a typographical error and I take it to refer to cl 9.2. In that event, it confirms the return of the deposit to the buyer in circumstances other than breach by the buyer justifying termination.

42. Mr Arora submitted that there were a number of breaches by the buyer. He relies on Mr Sarker’s refusal to re-sit the Subway test, a matter held by me not to constitute a breach of the agreement.

43. If there was a wrongful repudiation of the agreement by Mr Sarker, it may enliven cl 9.2(a) entitling the seller to terminate under cl 9.2(b). But Mr Arora's solicitors’ letter in response to Mr Sarker's rescission of the agreement, for non-fulfilment of a condition precedent, did not rely on any alleged repudiation. Nor did Mr Arora rely on repudiation in these proceedings.

44. Apart from Mr Sarker’s failure to re-sit the Subway test, Mr Arora also relies on cl 4 of the Management Agreement. The Management Agreement was one of the schedules to the Business Sale Agreement. Clause 4 provides:

"The Buyer will ensure that during the course of this Management Agreement, all the requirements of the Franchise Agreement and all the requirements of the Lease will be fully adhered to. Any time that the Seller finds that the Buyer is not complying with all the provisions of the Franchise Agreement and the Lease covenants, then the Seller will have the right to terminate this agreement in totality, including this Sale Agreement as well, and forfeit all deposits. In case of such forfeitures, the Seller will have the right to step back into the business, sell the business, recover all costs and lost monies and the remainder from the sale will be paid back to the Buyer towards his forfeited Deposits."

This clause purports to allow Mr Arora to terminate the Management Agreement and the sale agreement if, "the Buyer is not complying with all the provisions of the Franchise Agreement".

45. Clause 5(b)(ii) and (iii) of the Franchise Agreement relevantly provides:

"(ii) You will operate the Restaurant in accordance with our Operations Manual (the "Operations Manual"), which contains mandatory and suggested specifications, standards and operating procedures, which may be updated from time to time as a result of experience, or changes in the law or marketplace…

(iii) If you fail to operate the Restaurant in accordance with the Operations Manual, we may terminate this Agreement under Subparagraphs 8 a, 8 b and 8 c, as applicable..."

46. There was evidence in the proceedings of aspects in which the Subway Forestway store, during Mr Sarker's management, was not always fully compliant with directives in the operations manual. For example, in July and November 2014 the treatment of bread was non-compliant, either because it was not baked every four hours or was not wrapped in a plastic wrap. This resulted in a "compliance warning". On another occasion the capsicum was not sliced correctly.

47. There was no suggestion of any steps being taken by Subway in respect of these items of non-compliance, to terminate the franchise. However, the argument may still be made that Mr Sarker did not comply, "with all the provisions of the Franchise Agreement", namely, to "operate the Restaurant in accordance with our…mandatory and suggested specifications, standards and operating procedures". That then would give the right to the seller to terminate the sale agreement and the Management Agreement pursuant to cl 4.

48. There are three reasons why this argument does not assist Mr Arora.

49. First, Mr Arora was made aware of these aspects of non-compliance but took no steps to rely on them to terminate the agreement. By his continuing to accept regular payments as part-payment of the outstanding purchase price, he must be taken to have waived any right to terminate which arose by reason of these breaches (see e.g. 93 GSP Pty Ltd v Advent 8 Pty Limited [2013] NSWDC 135 at [38]-[44]; GPT Funds Management 2 Pty Limited v Footwear Trading Group Pty Ltd [2013] NSWDC 199 at [73]-[80]).

50. Secondly, as indicated above, the sales agreement had already been rescinded for non-fulfilment of a condition precedent, so no opportunity for Mr Arora to terminate for breach under cl 4 remained.

51. Thirdly, neither the letter in response to Mr Sarker's termination (which did refer to cl 4 of the Management Agreement) nor the cross-claim makes any reference to these breaches. Rather, the cross-claim identifies the failure to pass the skills test, with which I have already dealt, a decline in turnover, about which I will say more below, and an alleged breach of cl 4.1 (quoted earlier) in Mr Sarker failing to obtain completion by July 2014, as the relevant breaches. This last matter was not the subject of submission and in any event, could not be maintained because the obligation to obtain timely completion was imposed by cl 4.1 of the Business Sale Agreement upon both the buyer and the seller, and could not occur while Mr Arora had not fulfilled the requirements of his franchise agreement with Subway.

52. Accordingly, accepting the strict view of cl 4 of the Management Agreement, namely that any non-compliance by Mr Sarker entitled Mr Arora to terminate, Mr Arora did not do so before Mr Sarker rescinded in January 2015, and he did not subsequently in the pleading rely upon this ground as a ground for termination.

53. Accordingly, Mr Arora was not entitled to terminate the agreement.

54. Mr Arora's attempt to forfeit the security deposit of $75,000 suffers from the defects earlier identified in respect of the initial deposit of $10,000. Even if termination for breach was available, it would not entitle Mr Arora to forfeit an amount of about 80% of the purchase price as this would clearly be a penalty.

55. Perhaps because of the obvious penal quality of forfeiting the $75,000 security deposit, Mr Arora argued that it was not a deposit that was being forfeited but that it bore the character of a purchase price for the right to manage the business. This argument disregards the textual references in cl 9 which deal with, "Deposit", and, "Payment of Deposit". The agreement refers to the payment of $75,000 as a "security deposit" repeatedly in cl 9.1 and in cl 6 of the Management Agreement. The reference to the security deposit being "towards the performance of the Management agreement" indicates that it was in the nature of a performance bond. Further, the references to, "deposits", and, "forfeited Deposits", and also, "forfeitures", in cl 4 of the Management Agreement indicate that there were at least two deposits, one in addition to the initial deposit. No additional deposit other than the security deposit was evidenced or suggested in submissions.

56. Another aspect of the text of the agreement points against the $75,000 payment being a payment for the rights under the Management Agreement. Clause 8 of the sale contract and cl 8 of the Management Agreement both provide that the security deposit would be applied toward the sale price, which was, at cl 8.2 of the sale agreement, to be apportioned wholly to, "Plant and Equipment". The limited definition of the singular, "Deposit", does not negative this conclusion. Moreover, the circumstance that the Management Agreement was envisaged to be for an uncertain duration and perhaps for as short as one month, speaks against the $75,000 payment being the purchase price of a right to manage the business and retain the proceeds. The reference to $75,000 being paid as a security deposit, "to get the management rights", in cl 6 of the Management Agreement is at best ambiguous.

57. It follows that Mr Arora is not entitled to forfeit the deposit or the security deposit, but could only retain those amounts by proving an equivalent amount of damages for breach of contract. I will return to the question of damages and the allegation of breach by decline in turnover.

F. MISLEADING CONDUCT

58. Mr Sarker alleged that he entered the agreement because Mr Arora represented that the rental for the Subway Forestway store would be $1,400 per week and that the store would generate $24,000 profit. There is no documentary evidence to support either representation. The allegation of misleading conduct was first raised in the Amended Statement of Claim filed on 17 November 2015, some ten months after the agreement was terminated. This suggests caution should be exercised in accepting the existence of these representations, even though generally I prefer Mr Sarker's testimony.

59. Both representations are pleaded in the form of what the rent or the profits "would be", raising a question about when the represented circumstance was to occur and whether it was no more than a statement of opinion by Mr Arora. During the time Mr Sarker operated the store, its profit was $31,573.91 which was said to equate to an annual profit of $47,360.88. This calculation to produce an annual profit involves a 50% increase on the actual gross return, an appropriate amount if the return covered the eight month period from 1 June 2014 to 31 January 2015 inclusive. But Mr Sarker's management started on 3 or 4 June 2014 and his last receipt was on 20 January 2015. No complaint was made by Mr Sarker about receiving no proceeds from the business after 20 January 2015. But these dates indicate that the annualised profit might have been closer to $50,000. I shall return to this matter of profit.

60. The rent in April 2015 comprised $4,991.62 for the base rent, $1,646.05 operating expenses and $2,122.71 marketing. In the absence of other evidence, the marketing expense can be excluded from what constitutes the rent. The residue totals $6,637.67. The sum of $1,400 per week allegedly represented calculates to be a little over $6,000 per month.

61. Given that Mr Sarker was unfamiliar with the return of the business, it would be surprising if the rent figure was more significant to him than the profits which he alleged were the subject of a representation at about the same time. So even if the rent figure was so represented, in the context of a representation about profit, the rent would not be so material.

62. Mr Sarker's evidence concerning the rent was given in indirect speech. This evidence was accordingly less than compelling as to what was actually said. In that evidence Mr Sarker referred to an amount of $1,450 per week (being approximately $6,300 per month). This inconsistency with the pleaded representation, the limited difference between the actual and the represented figure, the fact that the actual figure comprised a base rent and “operating expenses” which were not differentiated in the representation, the lateness of the allegation, the likely insignificance of rent in the context where profit was referred to, the lack of documentary corroboration, the wording of the alleged representation including the use of the word "would", and the circumstance that the representation case was not firmly pressed in submissions, all cause me to be unsatisfied that Mr Arora made such a representation or that it was a misrepresentation that was believed and relied upon by Mr Sarker.

63. As to the alleged profit representation, it too was not firmly pressed at the conclusion of the proceedings. The annualised figure of $50,000, to which I referred earlier, must have deducted from it the average weekly wage costs. This was initially agreed at trial to be an amount of $650 but a contrary submission was put by Mr Arora when Mr Sarker gave evidence that he was only assisted by labour additional to his own for about one whole eight hour day plus two hours each day. It seems unlikely that 20 or 22 hours of casual labour would cost him $650 per week. No documentary evidence to support the amount of wage costs was identified, although this may be because of the earlier agreement as to a figure.

64. The evidence of the representation is, "You should be able to make at least $28,000 profits". In its terms, this is not a representation of what a store would generate. So I cannot find the alleged misrepresentation to be proved. Nor is evidence of a representation of $24,000 profit in the year prior to purchase a representation of what it would generate for Mr Sarker.

65. Mr Sarker submitted that I need not determine this matter if I found that the monies paid should be returned and so no damages have been suffered. This has occurred. Nevertheless, for the brief reasons given, I would not be disposed to find in favour of Mr Sarker’s misleading representation claim.

G. MR ARORA'S DAMAGES CLAIM

66. Mr Arora, in his cross-claim, alleged three breaches mentioned above:

1. failure to successfully complete the Subway test;

2. failing to complete the purchase of the business by July 2014 or earlier; and

3. reducing the turnover due to poor management.

67. I have previously dealt with items (a) and (b) and reject them as breaches of contract.

68. The third alleged breach did not identify the items of "poor management". Even if that pleaded phrase is intended to raise the non-compliances to which I earlier referred, a matter I do not accept, the damages asserted by Mr Arora cannot be recovered.

69. Mr Arora particularised his loss as a loss incurred from February to May 2015 inclusive. Originally Mr Arora claimed $26,381.59 for the period from 4 February to 21 April. This was amended to $40,606.57 to include the period until 2 June 2015. In submissions Mr Arora sought to extend this period to January 2016 but did not pursue an application to amend the pleadings. In those events, the claim must be limited to the pleaded claim for the alleged losses for the period from February until 2 June 2015.

70. In submissions Mr Arora presented a schedule showing about $3,000 of losses each month, or $11,700 for the period to the end of May 2015. That is a significant reduction on the $40,606.57 claimed in the pleadings, casting doubt upon the veracity of Mr Arora's figures. In any event, there is no support for the figures in the evidence. The evidentiary foundation of the calculation presented in submissions was in estimates allegedly provided by Mr Arora to Mr Sarker prior to the purchase of the business. In these estimates, Mr Arora, in some cases, identified the proportion of sales that a particular expense would represent. These proportions that Mr Arora allegedly said to Mr Sarker, together with an increased figure for rent, were used by Mr Arora to calculate and record on the schedule the supposed expenses on the proven sales revenue.

71. There is no evidence to support that Mr Arora actually incurred the expenses claimed. Rather, the submission is effectively what his expenses might be if I accept as correct the statement he alleges he told Mr Sarker about the proportions of sales borne by various expenses. That evidence was denied by Mr Sarker and for the reasons earlier given, I prefer Mr Sarker's evidence.

72. In addition, none of this evidence was given in Mr Arora's first affidavit, and some of it seems to me to be unlikely. For example, a rent figure he allegedly stated to Mr Sarker is a figure inclusive of GST. I do not accept that he would have given a GST inclusive figure when his oral evidence is of a figure exclusive of GST. This alleged conversation about the expenses was not corroborated by Mr Bhatia.

73. For these reasons, I do not accept that Mr Arora spoke to Mr Sarker in the terms alleged about the proportions that expenses bear to the sales volumes.

74. It was not submitted that I could reject Mr Arora's evidence of the conversation but nevertheless accept the assertion of the conversation as some evidence of the percentage that the expense bears to the sales volume.

75. In any event, the calculation submitted by Mr Arora adopted a GST inclusive figure for rent, the highest expense for food in Mr Arora’s alleged range (32% whereas Mr Arora is alleged to have said costs are, "30% to 32% or lowest 28%"), and similarly in respect of overheads (6% when Mr Arora allegedly said, "5% - 6%"), and labour costs (27% when Mr Arora allegedly said, "25% - 27%"). If the lower figures of expenses are utilised to calculate profit, a large percentage of the alleged loss disappears.

76. For all these reasons, I reject the calculations as evidencing Mr Arora's loss. He could have tendered primary evidence of expenditure or annual financial statements to establish a loss. He chose not to do so.

77. Even if some losses were incurred in the months following Mr Sarker's period of management of the store, those losses do not quantify the damages of Mr Arora. There is no cogent reason proffered as to why Mr Sarker should be responsible for, or why any breach by Mr Sarker could have caused, the losses in February to May inclusive after Mr Sarker ceased being manager of the store.

67. It was submitted that turnover declined during Mr Sarker’s management. It is true that revenue declined by an amount of between 11% and 21% (an average of 15.25%) during the months of Mr Sarker's management when compared to the revenue in the equivalent month in the preceding year (a matter somewhat different from that pleaded in para 8 of the cross-claim). However, in the four months from February to May 2014, immediately before Mr Sarker's management, revenue declined as against the corresponding month in the previous year by 20%, 25%, 24% and 14% respectively. This points against any decline being due to Mr Sarker's efforts. Still less does it establish a causal connection between the reduced turnover and some unidentified ("poor management") breach by Mr Sarker, or that Mr Sarker is liable for the reduced turnover after his period of management.

68. Accordingly, I reject the damages claim for breach of contract alleged in the cross-claim, even if (contrary to my findings) the breach were established.

H. QUANTUM

80. The parties agree that in addition to the payments of $85,000 for the deposit and the security deposit, Mr Sarker should be credited with having made 25 payments of $385, totalling $9,625.

81. In addition, it is agreed that Mr Arora received some monies from the deposit of $10,000 Ms Bisharat paid in anticipation of buying the business. That deposit of $10,000 was wholly repaid by Mr Sarker. Mr Sarker says that of the amount paid by Ms Bisharat, he received $6,000 and Mr Arora received $4,000 on account of alleged unpaid purchase monies at the time. After complaints by Mr Sarker that Mr Arora had received too much, he says Mr Arora repaid an amount of $2,000. Mr Sarker's bank account evidenced deposits of $6,000 and $2,000 providing some support for his account.

82. Mr Arora, on the other hand, says he received $2,000 (not $4,000) and that he repaid $1,200 (not $2,000). This evidence is not supported by any documents, a matter which, as I mentioned earlier, militates against Mr Arora, as on other occasions he kept records of relevant transactions.

83. As I prefer the reliability of Mr Sarker and he has some contemporaneous records in support, I find that he paid Mr Arora $2,000 not merely $800 from Ms Bisharat’s deposit. He is therefore entitled to a refund of $85,000 plus $9,625 plus $2,000, which together totals $96,625. Interest on this amount from 30 June 2015 to today, 9 August 2016, is $9,028.19, which together with the amount paid by Mr Sarker totals $105,653.19.

I. COSTS

84. The parties have requested that I not make any order in respect of costs, to allow for further submissions about that matter. I will reserve the question of costs.

J. PARTIES

85. I should note that the plaintiffs comprise Mr Sarker and his company, Sarker Trading Pty Ltd, and the defendants comprise Mr Arora and his company, Vanege Pty Ltd. Although the parties to the sale agreement were the personal plaintiff and the personal defendant, suggesting that the order for judgment should be in favour of the personal plaintiff, the agreement refers to all of the parties and no party took any issue in regard to the parties. Accordingly, I propose to make the orders in favour of the plaintiffs and against the defendants.

K. ORDERS

86. Therefore, the orders of the Court are:

1. On the statement of claim, judgment in favour of the plaintiffs against the defendants in the sum of $105,653.19.

2. Dismiss the cross-claim.

3. Reserve all questions of costs.

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Decision last updated: 31 May 2018