Shah v Hagemrad

Case [2018] FCAFC 148

FEDERAL COURT OF AUSTRALIA

Shah v Hagemrad [2018] FCAFC 148

Appeal from: Shah v Hagemrad [2018] FCA 91
File number: NSD 252 of 2018
Judges: RARES, MARKOVIC, BANKS-SMITH JJ
Date of judgment: 13 August 2018
Catchwords: APPEAL – rehearing – review of judge’s findings of fact – whether findings inconsistent with incontrovertibly established facts – power of appellate court to set aside findings – whether judge erred in calculation of damages
Legislation:

Federal Court of Australia Act 1976 (Cth) s 27

Federal Court Rules 2011 r 36.75

Cases cited:

Australian Iron and Steel Limited v Greenwood (1962) 107 CLR 308

Enzed Holdings Limited v Wynthea Pty Limited (1984) 57 ALR 167

Mills v Stanway Coaches Limited [1940] 2 KB 334

Placer (Granny Smith) Pty Ltd v Thiers Contracts Pty Ltd (2003) 196 ALR 257

Warren v Coombes (1979) 142 CLR 531

Date of hearing: 13 August 2018
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Category: Catchwords
Number of paragraphs: 33
Counsel for the Appellant: Dr AJ Greinke
Solicitor for the Appellant: Lodhia Lawyers
Counsel for the First Respondent: Mr CD Wood
Solicitor for the First Respondent: Paramonte Legal

ORDERS

NSD 252 of 2018
BETWEEN:

JIMITKUMAR BHUPESHKUMAR SHAH

Appellant
AND:

MAZEN HAGEMRAD

First Respondent

MICHAEL ALLOUCHE

Second Respondent

JUDGES:

RARES, MARKOVIC, BANKS-SMITH JJ

DATE OF ORDER:

13 AUGUST 2018

THE COURT ORDERS THAT:

1.Pursuant to r 36.75 of the Federal Court Rules 2011, the hearing of the appeal proceed generally as against the second respondent.

2.The appeal be allowed.

3.Order 1 of the orders made by the primary judge on 23 February 2018 be varied by deleting “$337,696” and substituting “$476,170.62”.

4.The respondents pay the appellant’s costs of the appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT
(REVISED FROM THE TRANSCRIPT)

THE COURT:

  1. This appeal is limited to a short point that, in essence, turned on whether the primary judge erred in using the average weekly earnings, excluding GST, instead of including GST when assessing the value of the business that generated those earnings.  It arises in the following context.

    Background

  2. The appellant, Jimitkumar Bhupeshkumar Shah, was the sole director of the second applicant below, Riversub Pty Limited as trustee of the Tandon family Trust.  Mr Shah purchased the right to operate a Subway franchise business operated under a licence from a well-known retail fast food chain, in Haymarket, on George Street, Sydney, from the respondents and vendors, Mazen Hagemrad and Michael Allouche.  The third respondent below was a company associated with the vendors, The Retail Group (Darlinghurst) Pty Limited that is now in liquidation.  Mr Allouche and The Retail Group did not appear at the trial.  Mr Shah joined only the two vendors as respondents to the appeal.  Mr Allouche was served with the notice of appeal personally on 20 July 2018 together with the primary judge’s reasons, final orders…

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AGLC
Shah v Hagemrad [2018] FCAFC 148
Case
[2018] FCAFC 148
Decision Date

CaseChat Overview and Summary

In the matter of Shah v Hagemrad, the appellant, Jimitkumar Bhupeshkumar Shah, challenged the primary judge's determination in the Federal Circuit Court, arguing that the judge had erred in calculating the damages awarded by not including GST in the assessment of the value of the business he had purchased. The dispute arose from the sale of a Subway franchise business in Haymarket, Sydney, which Mr Shah had bought from the respondents, Mazen Hagemrad and Michael Allouche. The contract for the sale was made on 16 July 2015, and the parties subsequently renegotiated the purchase price based on updated sales figures. Mr Shah claimed that the vendors had provided fraudulent sales reports, leading to an overvaluation of the business.

The central legal issue in this appeal was whether the primary judge erred in his calculation of damages by excluding GST from the average weekly earnings when assessing the value of the business. Additionally, the court had to determine whether the primary judge's findings of fact were inconsistent with the incontrovertibly established facts and whether the judge had sufficiently explained his reasoning for the damages awarded. The respondents contended that the primary judge had discretion in assessing the value of the business and was entitled to arrive at his finding without elaborating on the reasons. However, the appellant argued that the primary judge's failure to explain his assessment of damages was problematic and required the court to undertake a rehearing to establish the proper inference from the undisputed facts.

The Full Court found that the primary judge's failure to explain how he arrived at his finding of the business's actual net weekly takings, exclusive of GST, was a significant omission. The Court held that a judge must provide reasons for assessing damages in a particular way, especially when the task is not as complex as suggested by some precedents. The Court also noted that the primary judge's findings that the business had been in a dire financial state and that the banking records provided a more reliable record of takings made his assessment of $12,000 per week exclusive of GST appear either mistaken or without basis in the evidence. Consequently, the Court concluded that it was in as good a position as the trial judge to decide on the proper inference to be drawn from the established facts. The appeal was allowed, and the damages awarded were increased accordingly.

Orders

Orders of the court

1. Pursuant to r 36.75 of the Federal Court Rules 2011, the hearing of the appeal proceed generally as against the second respondent.

2. The appeal be allowed.

3. Order 1 of the orders made by the primary judge on 23 February 2018 be varied by deleting “$337,696” and substituting “$476,170.62”.

4. The respondents pay the appellant’s costs of the appeal.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

This appeal is limited to a short point that, in essence, turned on whether the primary judge erred in using the average weekly earnings, excluding GST, instead of including GST when assessing the value of the business that generated those earnings. It arises in the following context.Background The appellant, Jimitkumar Bhupeshkumar Shah, was the sole director of the second applicant below, Riversub Pty Limited as trustee of the Tandon family Trust. Mr Shah purchased the right to operate a Subway franchise business operated under a licence from a well-known retail fast food chain, in Haymarket, on George Street, Sydney, from the respondents and vendors, Mazen Hagemrad and Michael Allouche. The third respondent below was a company associated with the vendors, The Retail Group (Darlinghurst) Pty Limited that is now in liquidation. Mr Allouche and The Retail Group did not appear at the trial. Mr Shah joined only the two vendors as respondents to the appeal. Mr Allouche was served with the notice of appeal personally on 20 July 2018 together with the primary judge’s reasons, final orders and procedural orders made by the Registrar on 2 May 2018, but he has not appeared. The negotiations for the purchase of the business resulted in Mr Shah agreeing to purchase it on the basis of his understanding of the net weekly sales figures that the vendors’ agent initially provided to him. Mr Shah had experience of Subway franchises having already operated three other Subway franchise businesses. On 16 July 2015, Mr Shah as purchaser, entered into a contract for the sale and purchase of the business with Mr Hagemrad and Mr Allouche, as vendors. The price was $500,000, exclusive of the value of the stock, to be determined by a stocktake on the day of completion to a maximum value of $6,000. The primary judge found that not much appeared to have happened after the entry into the contract while the parties awaited the consent of the franchisor, Subway Systems Australia Pty Limited, to the transfer of the business. Part of the franchisor’s arrangements with its franchisees involved a sales reporting system on the basis of which franchise payments were to be calculated. The primary judge found that on about 11 October 2015 Mr Shah asked Mr Hagemrad for a copy of the latest monthly combo sales report submitted by the business to the franchisor and the next day Mr Hagemrad provided it to Mr Shah. This led to some further discussions, because Mr Shah had noticed that sales had declined by about 10% over the last three months. In the event, the parties renegotiated the purchase price based on the latest figures. Ultimately, on 21 October 2015, Mr Shah caused the vendors to be paid about $424,000, being the balance outstanding of the renegotiated price of $460,000. The primary judge found that the monthly combo sales reports that the vendors had provided to Mr Shah were fraudulent and that Mr Hagemrad had given false evidence that Mr Allouche had taken cash out of the takings to justify the sale price.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

On that basis the parties agreed before us that Mr Ozich’s valuation would have generated a value of $40,000 for the business and that his Honour’s award of damages was, thus, understated by $120,000 plus interest.Conclusion For these reasons, the appeal must be allowed and order 1 made on 23 February 2018 should be varied from $337,696 to $476,160.02. Costs should follow the event.

Ratio Decidendi

Legal Principle Established

Mr Hagemrad accepted that the primary judge had not elaborated or explained how he had arrived at his finding that the actual net weekly takings (i.e. exclusive of GST) were $12,000 per week. Mr Hagemrad contended that, in a case such as the present, his Honour was entitled to make that finding because it was open to him to do so in exercising a discretionary judgment as to the value of the business.Consideration Mr Hagemrad’s argument must be rejected. A judge must give reasons as to why he or she has assessed damages in a particular way. There will be cases where it is difficult to be precise, as the Full Court in Enzed 57 ALR at 183 suggested. Indeed, in Australian Iron and Steel Limited v Greenwood (1962) 107 CLR 308 at 326, Windeyer J compared the task of a jury in assessing general damages for personal injury with what Lord Goddard CJ had said, as Goddard LJ, in Mills v Stanway Coaches Limited [1940] 2 KB 334 at 349, namely:Of course, different minds have diferent ideas as to what is moderate in seeking for a mean, a normal or an average. Where there is really no guide it is very like Lord Bowen’s illustration of a blind man looking for a black hat in a dark room. However, this is not such a case: cf Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 at 267 [41] per Hayne J, with whom Gleeson CJ, McHugh and Kirby JJ agreed. His Honour did not explain how, in the context of his other findings, he had arrived at a takings figure of $12,000 per week exclusive of GST or $13,200 inclusive of GST. That context consisted of the primary judge’s findings that, first, the banking records for the period June 2014 to October 2015 provided a much more reliable record of the takings of the business than the monthly combo reports, secondly, the business had been in a dire financial state over that period, and thirdly, the banking records of the business for the 12 months ended 30 June 2015 showed average weekly takings, inclusive of GST, of $12,442 per week. Given his Honour’s findings that the business continued to decline after 30 June 2015, with respect, in our opinion, his Honour did not explain how he arrived at his finding that, in fact, the actual sales figures, excluding GST, for the preceding 12 months were $12,000, which equalised to $13,200 per week inclusive of GST. In those circumstances, his Honour’s finding that the average sales were about $12,000 per week, exclusive of GST, appears to have been either a mistake or to have no basis in the evidence. Accordingly, the Court must undertake on a rehearing, pursuant to s 27 of the Federal Court of Australia Act (1976) (Cth), the task that Gibbs ACJ, Jacobs and Murphy JJ identified in Warren v Coombes (1979) 142 CLR 531 at 551, namely:… in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge, but, once having reached its own conclusion, will not shrink from giving effect to it. These principles, we venture to think, are not only sound in law, but beneficial in their operation.