Sevenhill Holdings Pty Ltd v Musovic, D
[1992] FCA 371
•04 JUNE 1992
Re: SEVENHILL HOLDINGS PTY LTD; MICHAEL SHANE BLADES and LESLEY GAIL BLADES
And: DANICA MUSOVIC; MICK MUSOVIC; LOGIE BRAE PTY LTD and RAMON ENGLISH
No. WA G102 of 1990
FED No. 371
Trade Practices
COURT
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)
CATCHWORDS
Trade Practices - misleading or deceptive conduct - sale of business - judgment against vendors and brokers - joint and several liability - cross-claims for contribution and indemnity - broker's cross-claim allowed to extent of indemnity as damages for misleading or deceptive conduct by the vendors causing loss to the broker.
Trade Practices Act 1974
Fair Trading Act 1987
HEARING
PERTH
#DATE 4:6:1992
Solicitors for the Applicant: Mazza McCallum and Robinson
Solicitors for the First and Second Respondents: Sly and Weigall
Solicitors for the Third and Fourth Respondents: Marks Healy Sands
ORDER
THE COURT ORDERS THAT:
1. The cross-claim of the first and second respondents against the third and fourth respondents is dismissed.
2. The third and fourth respondents be indemnified by the first and second respondents in respect of the judgment sums and costs of the application for which they are liable to the applicants.
3. The first and second respondents pay the third and fourth respondents' costs of the cross-claims.
Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
These proceedings relate to the purchase in 1990 of a lunchbar at Myaree known as Danica's Lunchbar. The purchaser, Sevenhill Holdings Pty Ltd, and its principals, Mr and Mrs Blades, sued the vendors of the business, Danica and Mick Musovic, the business broker, Logie Brae Pty Ltd and its employee, Ramon English. The action arose out of alleged pre-contractual misrepresentations as to turnover and assets of the business. Damages were claimed under the provisions of the Trade Practices Act and the Fair Trading Act relating to misleading or deceptive conduct and at common law. The action was defended. The vendors cross-claimed for contribution or indemnity against the business broker and its employee and a similar claim was made by the business broker and its employee against the vendors.
On 24 March 1992 I gave judgment against the respondents in the following terms:
"1. There be judgment against all respondents:
(a) In favour of the first applicant in the sum of $158,896.
(b) In favour of the second and third
applicants jointly in the sum of $11,503.
(c) In favour of the second applicant in the sum of $6,818.
(d) In favour of the third applicant in the sum of $6,654.
2. There be liberty to all parties to apply within seven (7) days by written
submission to correct any error of
calculation in the damages awarded.
3. The first and second respondents' cross-claim against the first applicant is dismissed.
4. The respondents have liberty to apply for any order as to contribution under their respective cross-claims by way of written submission to be lodged within fourteen
(14) days.
5. The respondents are to pay the applicants' costs of the application.
6. The respondents otherwise have liberty to apply on the question of costs on their cross-claims, such application to be by way of written submission within fourteen
(14) days."
Written submissions were subsequently received on the question of contribution. An extension of time was allowed to the Musovics for this purpose to enable them to obtain assistance from the Litigation Assistance Fund in the proper formulation of their submissions. The submissions for Logie Brae and Mr English were filed on 7 April 1992, those from the Musovics on 6 May 1992 and supplementary submissions by Logie Brae and Mr English on 11 May 1992.
In the submissions filed on behalf of the Musovics, the following points were made:
1. Although neither the Trade Practices Act 1976 (Cwth) nor the Fair Trading Act 1987 (WA) make provision for apportionment of contribution between parties towards loss or damage caused by them, the Court may make orders for contribution based upon rights at law or in equity arising out of co-ordinate liability between those parties.
2. No finding of fact was made to suggest that the misrepresentations attributed to the Musovics played a greater role than those attributed to the brokers in inducing the purchase of the business.
3. Logie Brae and Mr English had been engaged by the Musovics in a professional capacity and could and should have shown a more professional approach in the manner in which they went about the transaction. In particular, the brokers were negligent and in breach of a duty of care owed to the Musovics in a) proceeding upon the assumption that a depreciation schedule provided by the Musovics was a true statement of the plant and equipment of the business and in passing it on; b) failing to ensure that the items in the depreciation schedule were properly depreciable under the Income Tax Assessment Act; c) failing to cause the Musovics to amend the depreciation schedule; d) failing to emphasise to the Musovics the need for representations as to turnover to be made with care; e) failing to warn the Musovics that the representations as to turnover would be relied upon; f) perpetuating a misunderstanding created by the depreciation schedule by telling Messrs. Blades and Pittman that they could have the full tax benefits of depreciation on the items set out in the schedule; g) passing on representations as to turnover at a meeting of 12 May 1990; h) not taking more care not to allow the Musovics to make the representations.
The considerations and criteria used in assessing contributions between joint tort feasors were invoked as providing assistance in determining contributions between the parties in this case. The Court's discretion, it was said, is wide and involves no question of principle but only proportion and balance of all relevant considerations. The point was made that the Musovics were not experienced business people and not experienced in selling businesses and were reliant on the skill and expertise of the brokers. It was submitted that it is reasonable to assume that the brokers should have exercised a greater degree of care in their professional responsibilities and should bear a greater burden of the damages and costs than the Musovics. The point is also made that the brokers should have a greater capacity to pay through professional indemnity insurance and that the direct impact of the award of damages against them will not be as great as against the Musovics who are in poor financial circumstances.
The brokers on the other hand, say they are entitled to be wholly indemnified by the Musovics. In support of that proposition they submit:
1. The only conduct on their part identified as giving rise to liability to the applicants related to an implied representation arising out of the delivery of the depreciation schedule.
2. The Musovics had delivered the depreciation schedule to the brokers as part of the books of the business. At the time of delivering it they did not disclose or reveal in any way that the figures contained in it were erroneous or inaccurate.
3. Mr English did not adopt the depreciation schedule as his own but perpetuated the misunderstanding by advising the applicants that they "could have the full tax benefits of depreciation on the items set out in the schedule" and thereby impliedly represented that the schedule recorded the total cost price initially paid by Mrs Musovic when purchasing the plant and equipment was $87,775.
4. The brokers merely passed the information to the applicants as agents for the Musovics and not otherwise. They were the mere conduit of information and acting in accordance with their principals' instructions. On that basis they were entitled to be indemnified in full in respect of the judgment sum. Further, the Musovics should pay the brokers' costs of defending the action and of the cross-claim proceedings.
The submissions went on to say that the Musovics were the authors of all of the misrepresentations proved at trial and that the brokers were not responsible for such information.
By way of supplementary submissions for the brokers, it was put that an order for contribution or indemnity is to be assessed on the basis of what is just and equitable having regard to the extent of the parties' responsibility for the damage. It was clear from the evidence, it was said, that the applicants placed considerable importance upon Mrs Musovic's representations as to turnover and on the subsequent trial period that led to the applicants proceeding to settlement. There is no evidence, it is said, that the brokers were negligent or in breach of any duty of care owed to the Musovics. The particulars of negligence relied upon in the submissions in support of the cross-claim were not pleaded. The extent of the duty owed by the brokers was to use reasonable care and skill as a business broker to obtain an offer for the purchase of the Musovics' business. The brokers say they were only agents to negotiate a contract and not otherwise. The fact that they might have access to professional indemnity insurance was not to be a relevant consideration when considering what was just and equitable and having regard to the extent to which each party was responsible for the applicants' damage. The Musovics as authors of the depreciation schedule and of all other representations established at trial were said to be wholly responsible for the applicants' damage and ultimately by way of apportionment or contribution are liable for the payment thereof.
By their cross-claim the brokers claimed what amounts to an indemnity by way of damages under s.77 of the Fair Trading Act or s.82 of the Trade Practices Act 1974 on the basis that their liability to the applicants has arisen as a result of misleading or deceptive conduct on the part of the Musovics in representing that the depreciation schedule contained information that was accurate.
In relation to the depreciation schedule I made the following findings in the judgment which are relevant for present purposes.
1. That the schedule was provided by Mrs Musovic to Mr English in response to a request contained in a letter dated 26 February 1990. It was prepared by another agent that Mrs Musovic had appointed to sell the business. It was based upon an account that her landlord, Mr Timperio, sent her and approximate figures that she had worked out from invoices and cheque butts relating to other items of plant. Mrs Musovic and the author of the schedule have included in it all items associated with the fitting out of the premises including those for which Mr Timperio had charged her. She told Mr English at the time she gave the depreciation schedule to him that this was the price she had paid to set up the shop (pp 15-16).
2. Mr English passed the depreciation schedule to Messrs. Blades and Pittman as a document made available to him by Mrs Musovic and proceeded upon the assumption that it was a true statement of the plant and equipment of the business. It does not follow that he adopted it as his own. He nevertheless can be taken to have at least impliedly represented that it was a document which could properly be treated as a record of the physical assets of the business and the cost of acquisition of those assets (p 33).
3. While Mr English did not adopt the depreciation schedule as his own, it was a seriously misleading document reflecting on the part of its author a misunderstanding of the difference between plant and equipment of the business and fitout costs. Mr English appears to have perpetuated that misunderstanding by telling Messrs. Blades and Pittman that they could have the full tax benefits of depreciation on the items set out in the schedule. He impliedly represented, albeit unintentionally, that it recorded that the total cost price of the items of plant and equipment being sold by the Musovics when initially purchased was $87,775. That was a misrepresentation. Although Messrs Blades and Pittman tended to focus upon takings and profitability, the asset position apparently reflected in the depreciation schedule was a factor which contributed to their decision to purchase the business and upon which they relied in making that decision. The presentation of the depreciation schedule was also, therefore, a factor inducing Sevenhills to execute the contract between itself and Mr and Mrs Musovic on 21 July 1990 (pp 68-69).
4. When he presented the depreciation schedule to Mr Blades, Mr English was doing so on behalf of Mrs Musovic and her husband and to that extent they were also to be treated as having engaged in misleading or deceptive conduct in contravention of the Fair Trading Act 1987. (pp 69-70)
On the basis of these findings, I am satisfied that in the presentation of the depreciation schedule through Mr English to the purchasers, Mr and Mrs Musovic engaged in misleading or deceptive conduct which is causally related to the liability to which the brokers were exposed. I am not satisfied that there is any basis for saying that the liability to which the Musovics were exposed was the result of the conduct of the brokers. In the circumstances, I propose to dismiss the cross-claim brought by the Musovics against the brokers. I propose to allow the cross-claim by Logie Brae and Mr English to the extent of a complete indemnity against the amount of the judgment and costs payable on the application. That order is by way of damages under the provisions of the Fair Trading Act 1987 (WA).
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