Solar Panel Xpress Pty Ltd v Wallandale Pty Ltd
[2021] QDC 31
•3 March 2021
DISTRICT COURT OF QUEENSLAND
CITATION:
Solar Panel Xpress Pty Ltd v Wallandale Pty Ltd & Ors [2021] QDC 31
PARTIES:
SOLAR PANEL XPRESS PTY LTD (ACN 603 183 651)
(Plaintiff)AND
WALLANDALE PTY LTD (ACN 006 922 738)
(First Defendant)AND
CANCOURT PTY LTD (ACN 159 269 039)
(Second Defendant)AND
ERWIN SPERL
(Third Defendant)AND
DEREK O’CONNELL
(Fourth Defendant by counterclaim)AND
VINCENT JOSEPH HOLLAND
(Fifth Defendant)FILE NO/S:
2012/16
DIVISION:
Civil
PROCEEDING:
Trial
ORIGINATING COURT:
District Court at Brisbane
DELIVERED ON:
3 March 2021
DELIVERED AT:
Brisbane
HEARING DATE:
19, 20, 21 and 22 October, 5 and 6 November, and 1 December 2020
JUDGE:
Porter QC DCJ
ORDER:
1. The plaintiff’s claim is dismissed.
2. The first defendant’s counterclaim against the plaintiff and the fourth defendant is dismissed.
3. The second and third defendant’s counterclaim against the first and fifth defendants is dismissed.
CATCHWORDS:
GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where plaintiff contracted to purchase a business conducted by the first defendant – whether on the proper construction of the sale contract, the business sold included PV sales business component of the existing business – where the contract was intended to be entirely in writing – whether extrinsic facts may be considered to assist in construction– whether and to what extent post-contractual events assist in construction
CONTRACT - MISLEADING OR DECEPTIVE CONDUCT – where profit and loss statements were provided to the plaintiff in respect of the business offered for sale by the first defendant – where the profit and loss statements were prepared by the second defendant accountants – where the profit and loss statements included revenue and costs arising from both a 12V and RV sales business and a PV sales business – whether provision of the profit and loss statements and certain alleged oral statements related to them were misleading or deceptive – whether the second defendant accountants were liable for any misleading conduct alleged by the plaintiff where the statements were prepared in accordance with the accountant defendants’ retainer
LEGISLATION
Competition and Consumer Act 2010 (Cth), Schedule 2 - Australian Consumer Law, s 18
CASES
Aurizon Network Pty Ltd v Glencore Coal Queensland Pty Ltd & Ors [2019] QSC 163
Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471
Glencore Coal Queensland Pty Limited v Aurizon Network Pty Ltd [2020] QCA 182
Gould v Vaggelas (1985) 157 CLR 215
Hobson v Taylor [2019] QCA 265
Huntsman Chemical Company Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104
San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340
Tripple A Pty Limited v WIN Television Qld Pty Ltd [2018] QCA 246
Wagners Cement Pty Ltd v Boral Resources (Qld) Pty Limited [2020] QCA 289
Wagners Cement Pty Ltd & Anor v Boral Resources (Qld) Pty Ltd & Anor [2020] QSC 124
COUNSEL:
V. Brennan for the Plaintiff and Fourth Defendant
B.W. Wacker for the First and Fifth Defendants
J. Marr for the Second and Third Defendants
SOLICITORS:
McInnes Wilson Lawyers for the Plaintiff and Fourth Defendant
Tucker & Cowen Solicitors for the First and Fifth Defendants
Gilchrist Connell for the Second and Third Defendants
Contents
Summary
The background
Events prior to Wallandale buying Solar Xpress
Wallandale acquires Solar Xpress
Wallandale operates Solar Xpress
Preparation of the P&L Statements
No breach of duty by Sperl Parties
Mr O’Connell expresses interest
The 15 September 2015 meeting
Findings on 15 September meeting
The Contract
The due diligence period
The 7 October conversation
Events up to settlement
The dispute
Solar Xpress after settlement
Advertising and trading in PV products
Use of the goodwill for PV Sales
Trading performance post-settlement
Mr O’Connell’s salary
Value of plant and equipment
The proper construction of the Contract
The competing constructions
The O’Connell parties’ contentions
The Holland parties’ contentions
Relevant principles
The plaintiff’s claims against the Holland parties
Misrepresentations not made out
Reliance
The claims against the Sperl parties
Other issues
Loss issues
The plaintiff’s claim under the Contract
Wallandale’s counterclaim against the O’Connell parties
Conclusion
SUMMARY
In mid-2015, Mr Holland (the fifth defendant), by his company Wallandale (the first defendant) (the Holland parties), offered the business trading as Solar Xpress (Solar Xpress) for sale. He retained Wallandale’s accountant, Mr Sperl (the third defendant), by his company Cancourt (the second defendant) (the Sperl parties), to provide trading figures for Solar Xpress for use in the sale process. Mr Sperl prepared Profit and Loss statements for Solar Xpress pursuant to that retainer (the P&L Statements) which were provided to Solar Panel (the plaintiff) by its director, Mr O’Connell (the fourth defendant by counterclaim) (the O’Connell parties).
It is uncontentious that the P&L Statements included figures for two distinct business activities carried on by Solar Xpress at the time the figures were prepared: the sale and installation of solar power arrays for domestic and commercial sites (PV sales or grid sales business), and the sale of 12V solar systems and accessories for use in recreational vehicles (12V and RV sales business).
The plaintiff entered into a written contract to purchase Solar Xpress on 21 September 2015 (the Contract). The Contract settled on 24 November 2015. Soon after, Mr O’Connell asserted that the P&L Statements were misleading because they included the figures for the PV sales business, whereas, he contended, the business the plaintiff contracted to purchase comprised just the 12V and RV sales business. He also asserted that Mr Holland and Mr Sperl, at different times, had expressly told him that the P&L Statements were limited to the 12V and RV sales business. The defendants disputed both assertions.
The plaintiff sued Wallandale for damages for breach of contract or misleading or deceptive conduct (and Mr Holland as an accessory in the latter case). The plaintiff also sued Mr Sperl and his company for damages for misleading conduct or negligent misstatement arising out of the circumstances of the preparation of the P&L Statements by the Sperl parties and further, arising out of an alleged oral assurance given to Mr O’Connell by Mr Sperl as to their accuracy. The plaintiff claimed $250,000, the purchase price under the Contract, on the basis that the true value of the 12V and RV sales business sold under the Contract was nil.
The threshold issue is whether, on its proper construction, the business sold under the Contract was limited to the 12V and RV sales business. If the business sold under the Contract was limited to the 12V and RV sales business, then it is uncontentious that the P&L Statements considerably overstated the gross and net profit and were misleading. However, to succeed, the plaintiff must also establish:
(a)In respect of the Sperl defendants, that they have legal liability to the plaintiff even if the content of the P&L Statements is shown to have been misleading;
(b)In respect of all defendants, that Mr O’Connell relied on the relevant conduct, and it caused him to have the plaintiff enter the Contract and confirm satisfaction of the due diligence clauses in the Contract; and
(c)In the case of its claims against the Holland defendants, that it has suffered loss and damage as alleged, despite the subsequent trading success of the business.
For the reasons set out below, I find that on its proper construction, the business sold under the Contract was not confined to the 12V and RV sales business. Rather, the business sold under the Contract included both the 12V and RV sales business and the PV sales business. Accordingly, the P&L Statements were not misleading or erroneous in the manner alleged by the plaintiff. Primarily for this reason (though there are further reasons given as well), the plaintiff’s claims are dismissed.
THE BACKGROUND
Events prior to Wallandale buying Solar Xpress
Mr Holland is the sole director of Wallandale. From about 2007, Wallandale had conducted a business from 88 Link Road Coolum (the Coolum office) known as Solahart Sunshine Coast. The activities of that business included, inter alia, PV sales and solar hot water products.
Wallandale had always sold solar hot water products pursuant to dealership agreements with Solahart. The historical dealership agreements were not in evidence. The examples tendered were the dealership agreements executed on about 18 July 2014 (the Dealership Agreements). The following observations are relevant.
(a)First, there are two dealerships covering two franchise areas. The first area relates generally to the Sunshine Coast area, being in broad terms the area north from Caloundra and west to Kingaroy (the Sunshine Coast Dealership).[1] The second area relates generally to the Caboolture area and extends west to about Nanango (the Caboolture Dealership).[2] The two franchise areas adjoin each other.
(b)Second, while Wallandale always sold hot water systems pursuant to Solahart dealership agreements, that was not always the situation with the PV sales. Mr Holland started PV sales through Wallandale in about 2009 and for about three years thereafter, Wallandale purchased PV products (panels, inverters and so on) directly from the manufacturers. In about 2012, Solahart began supplying PV products wholesale and required its dealers to acquire PV products wholesale from Solahart. This tended to reduce the profit for Wallandale on PV sales.[3]
(c)Third, the Dealership Agreements are both with Wallandale, but notably the Sunshine Coast Dealership identifies Wallandale as follows: “88 Link Crescent Coolum QLD 4573 trading as Solahart Sunshine Coast”. The address given is the Coolum office. For the Caboolture Dealership, Wallandale is identified as being “of 55 Lear Jet Drive Caboolture QLD 4510 trading as Solahart Caboolture”. As will be seen, that is the address of Solar Xpress but not the trading name of that business. Despite that, Mr Holland said that Solahart Sunshine Coast operated over the whole of both dealership areas before Wallandale bought Solar Xpress.[4] There is no evidence of whether this was under one dealership agreement, or two, prior to acquisition of Solar Xpress. Either way, Wallandale was in the PV sales business in the Caboolture area prior to acquisition of Solar Xpress by Wallandale and was buying its PV products wholesale from Solahart.
[1] Exhibit 1 page 1033.
[2] Exhibit 1 page 1057.
[3] TS4-5.19 to .20
[4] TS4-7.30 to .33.
Mr Sperl has been Mr Holland’s accountant (and Wallandale’s accountant) for many years. Mr Sperl began operating through Cancourt in about 2012. Typically, the accounting work performed by Mr Sperl and Cancourt comprised the preparation and lodgment of tax returns, ATO compliance and Business Activity Statements, along with general accounting work, including consolidated profit and loss statements for Wallandale. Mr Sperl appears to have had an ongoing retainer to carry out that work. Mr Sperl never had remote access to the accounting systems of Wallandale. His practice was located in Victoria. However, Mr Sperl visited Queensland, usually quarterly, to facilitate carrying out his retainer. He usually went to the Coolum office rather than the Caboolture store and did not recall going to Caboolture much.
Wallandale acquires Solar Xpress
In or about 2012, Solar Xpress was being operated from a free-standing building at 55 Lear Jet Drive Caboolture. That premises comprised a large building with frontage to Gympie Road. The business sold solar and other products for recreational vehicles. Mr Holland also gave evidence that Solar Xpress supplied PV products; indeed that part of the business was said to be relevant to his decision to buy Solar Xpress. He said he thought Solar Xpress would be a good business for Wallandale to buy, because he thought it did more PV sales than Solahart Sunshine Coast and that it would be a good addition to Wallandale’s business to do more PV sales. He also thought it would be a good opportunity for his daughter, Ms Holland, to run a business. There does not appear to be any dispute that Solar Xpress was involved in PV sales as well as 12V and RV sales when it was purchased by Wallandale in early 2013. However, the Solar Xpress business, when purchased by Wallandale, did not sell Solahart hot water systems.
Mr Sperl was engaged by Wallandale to assist in the due diligence for the purchase of Solar Xpress, though no evidence was given as to the details of this process. It is accepted, however, that Mr Sperl was aware from that time, from his involvement in the purchase, that Solar Xpress carried on a PV sales business, as well as a 12V and RV sales business.
Wallandale operates Solar Xpress
Wallandale operated Solar Xpress and Solahart Sunshine Coast under the same ABN. However, the accounting systems for the two businesses were kept largely separate and they maintained separate bank accounts.
The accounts of Solar Xpress were not in good order when Wallandale acquired the business. However, for the two years and nine months that Wallandale owned and operated Solar Xpress, it maintained the accounting systems which were in place when it took over. There were two accounting systems used by Wallandale for tracking Solar Xpress’ trading, as well as for the 12V business:
(a)The first was a package known as Retail Manager. This was a point of sale system. It recorded sales of products and services provided as part of the 12V and RV store only. It did not include costs and revenue for PV sales.
(b)The second was MYOB. It did include costs and revenue for PV sales. The MYOB general ledger was not linked to Retail Manager. I infer that the information from Retail Manager was entered into the MYOB records. This was presumably done by the accounts manager for Wallandale, Ms Diane Johnson, who worked at the Coolum office.
Wallandale expanded the products sold by the Solar Xpress business to include Solahart hot water systems and (very modestly) pool heating. Accordingly, as at May 2015, the Solar Xpress website[5] had six primary links, four of which identified a different product category. Those were “Solahart Hot Water… Solar PV… Solar Pool Heating… 12V & RV Store”. The other two drop down links were “Current Specials” and “About Us”.
[5] Exhibit 1 page 778.
Although it was not in evidence, it is reasonable to infer that if one clicked on “12V and RV Store”, the webpage opened identified the products and services described in paragraph [13](a), not PV sales or any of the other product categories. That tends to be confirmed by examples of the webpages for Solar Xpress after the date of the Contract.[6] Mr O’Connell accepted in cross-examination by Ms Marr (for the Sperl parties) that he did check out the website before he signed the Contract.[7]
[6] See, for example, Exhibit 1 pages 784 and 786.
[7] TS3-8.46 to TS3-9.2.
At that time, the website also showed for “Solar PV”, that the PV systems offered were Solahart systems.[8] This was consistent with the obligations under Dealership Agreements I have already described in paragraph [8](b) above. It was not controversial that Solahart was not in fact a manufacturer of PV products, but rather operated as a wholesale supplier of panels made by other manufacturers, however, that is not the impression given on the website.
[8] Exhibit 1 pages 778 to 780.
There were many respects in which Wallandale conducted the two businesses separately in addition to the separate accounting systems. Mr Wacker, for the Holland parties, identified the following matters. They were supported by evidence from the Holland parties and I did not understand them to be controversial:[9]
(a)The two businesses had separate names and logos;[10]
(b)The two businesses traded from separate premises: Solahart Sunshine Coast from Coolum; Solar Xpress from Caboolture;[11]
(c)The two businesses had separate phone numbers,[12] staff[13] and websites;[14]
(d)The two businesses were advertised separately under their own names: Solar Xpress predominately in newspapers;[15] Solahart Sunshine Coast in radio, TV and press advertisements;[16] and
(e)The two businesses sourced customers in different ways. Solahart Sunshine Coast through its website and telephone.[17] Solar Xpress through its premises and telephone number.[18]
[9] See paragraphs 26 to 30 of Mr Wacker’s trial submissions.
[10] TS4-9.45 to .46 and TS6-7.33 to .40.
[11] TS4-10.4 to .5.
[12] TS4-10.1 to .2 and TS6-7.42 to .46.
[13] TS6-7.42 to TS6-8.2.
[14] TS4-6.10.
[15] TS4-10.7 to .15 and TS6-11.44 to TS6-12.26.
[16] TS4-6.31 to .36.
[17] TS4-6.38 to .40.
[18] TS4-10.1 to .4.
Ms Holland also said that she installed a large sign outside the store advertising the supply of PV products, and that she had a display solar panel in the store, along with brochures relating to solar panels and inverters. She also had a “Solar Xpress” styled business card.
Mr O’Connell visited the store on at least one occasion before the Contract was entered into and again at settlement. He did not recall seeing the PV products sign or the in-store panel. However, I accept Ms Holland’s evidence that the sign, and the panel and brochures, were in place as she said. It is logical she would have taken those steps: PV sales were a significant part of the business and, as we will see, were Ms Holland’s particular responsibility. It is possible that the panel was absent when Mr O’Connell went into the store before the Contract, because Ms Holland said it was sometimes taken to put on display at the trade fairs, though, given that Ms Holland was present when Mr O’Connell visited the first time, that seems unlikely. I think it more probable than not that the panel and sign were there when Mr O’Connell visited and he did not take notice of them. This is consistent with my general impression that Mr O’Connell was most interested in the 12V and RV side of the business, consistent with the tone of the advertising material to which I refer in paragraph [49] below.
Ms Holland, Mr Holland’s daughter, was duly installed as the manager of the Solar Xpress business. Her role also included dealing with all PV sales inquiries through Solar Xpress. This was because she was the person amongst the Solar Xpress staff most familiar with selling PV products. Ms Holland gave evidence that her role as sales representative for Solar Xpress grid sales was carried out separately from any such work for Solahart Sunshine Coast. She said she would attend the premises to inspect and prepare quotes wearing Solar Xpress attire and using a Solar Xpress vehicle. She also gave evidence that quotes were on Solar Xpress forms, and deposits for PV sales were (usually) paid to the bank account of Solar Xpress.
As PV sales were not included in Retail Manager, PV sales receipts paid to the Solar Xpress account (usually deposits) were calculated at the end of each day in a cash up process and the information sent to the Coolum office for entry in MYOB.[19]
[19] See paragraphs 43 and 44 of Mr Wacker’s trial submissions.
Despite this, the main steps necessary for completing PV sales were carried out by Wallandale from and through the Coolum office. This process started with the sending of the quotation prepared by Ms Holland to the Coolum office. Coolum would then order the panels, inverters and other equipment, arrange for its established contractors to install them, and the contractors would take the balance of the sale price on installation and, it seems, pay that sum into the bank account of Solahart Sunshine Coast.
Further, the invoicing for the PV products quoted by Ms Holland on Solar Xpress quotations was not carried out on Solar Xpress letterhead. With only a couple of exceptions, all the tax invoices issued for so-called Solar Xpress PV sales had no reference to Solar Xpress at all. Rather, the tax invoices:
(a)Referred to Wallandale trading as Solahart Sunshine Coast;
(b)Referred to the address of the Coolum office, not the Caboolture office;
(c)Principally identified Solahart with its logo and slogan;
(d)Referred to Ms Holland as sales person;
(e)Required payments to be made to the bank account of Solahart Sunshine Coast, not the account of Solar Xpress.
Mr Holland explained this practice for completing so-called Solar Xpress PV sales as follows:
(a)The reference to Solahart was necessary because Solahart provided a warranty along with the manufacturer’s warranty, but only if Solahart was on the tax invoice;
(b)He said the sales were completed through Solahart Sunshine Coast because the stock was located there, and the serial numbers of each panel had to be recorded so that customers could benefit from the relevant government scheme.[20]
[20] TS4-13.35 to .44.
The first matter is consistent with both the website and the evidence about the requirements of Solahart once it began to wholesale solar panels. I accept that to be correct.
As to the latter point, the stock was delivered usually after orders were made.[21] There were not large amounts of stock at Coolum. Further, there was no reason identified why stock could not have been ordered through the Solar Xpress store, delivered to that store, recorded at that location and invoiced to that store. In my view, the real reason why Solar Xpress orders were dealt with through Coolum is that Coolum had processes already set up for that purpose, and it was convenient to continue them. Given that Wallandale ran both businesses, it was a logical way to approach the business. The implications for whether the PV sales remained part of the Solar Xpress business is another matter.
[21] TS4-13.1.
Relevant to that matter is how the grid sales delivered through Coolum were accounted for. In that regard, I found the evidence hard fully to resolve down to the last detail. The evidence was that costs and revenue for orders taken through Solar Xpress, other than deposits, were paid and received by Coolum and, for a period at least, recorded in Solahart Sunshine Coast’s accounting system, Marlin.[22]
[22] TS4-12.30 to .35.
That would be an erroneous way of recording PV sales by Solar Xpress if Wallandale wished properly to account for that commercial activity as activity of the Solar Xpress business. I accept that Mr Holland realised that after some months, and directed Ms Johnson to record PV sales by Ms Holland, sourced from Solar Xpress into the Solar Xpress MYOB accounts. Mr Holland said he wanted this done so Mr Holland could accurately identify Ms Holland’s commission entitlements. It must be remembered that, at this stage, there was no idea of selling Solar Xpress and Wallandale ran both businesses. Attention to detail in respect of accounting as between the two businesses was probably not a high priority.
This might explain the odd way that the PV sales were recorded in the MYOB accounts tendered at trial. The P&L reports for July 2013 to January 2014 appear to record gross profit only for PV sales (note, for example, costs of sales for grid are minimal).[23] However, from January 2014 onwards, the figures appear to record correctly sales of grid and cost of sales for grid.[24] These figures reflect inclusion of the PV sales in the Solar Xpress business. Taken with the other evidence as to how the Solar Xpress sales were obtained (through calls and visits to the Caboolture number and store) and administered by Ms Holland (using Solar Xpress business cards, uniform and quotation documents), I find that PV sales, in fact, were treated by Wallandale as part of the business of Solar Xpress up to the time that Wallandale sold Solar Xpress.
[23] Exhibit 1 page 1008.
[24] Exhibit 1 page 1010.
I add that, given Mr Sperl’s ongoing involvement with Wallandale, it is reasonable to infer that he was aware of the way PV sales for Solar Xpress were accounted for, notwithstanding that his primary interest was in Wallandale’s overall position. Whether the PV sales business was included in the sale under the Contract with the plaintiff, however, is another matter.
Preparation of the P&L Statements
In about September 2015, Mr Holland decided to sell Solar Xpress because Ms Holland did not want to continue running the business and had other personal objectives in mind. It was suggested, perhaps faintly, that Mr Holland’s real reason was that the business was not performing. I do not think that played a significant role in the decision. The business was not performing badly, especially if PV sales were included. Further, Mr Holland bought the business in part for his daughter to run, so it is not surprising that her change of mind would lead to his decision to sell. It is also the reason given at the time to the business broker.[25]
[25] Exhibit 1 page 35.
Mr Holland listed the business for sale with Mr Russell of Savvy Business Brokers, the agent through whom he purchased the business in 2013.
Mr Holland retained Mr Sperl (through Cancourt) to prepare figures for use in the sale. Mr Sperl did so, in the form of the P&L Statements. The nature and extent of the retainer, and Cancourt’s care in carrying it out, were contentious between the Holland parties and the Sperl parties on the pleadings:
(a)The Holland parties counterclaimed against the Sperl parties seeking indemnity for any liability to the plaintiff by way of damages for negligence in preparation of the figures used in the sale process; and
(b)The Sperl parties counterclaimed for indemnity for any liability to the plaintiff by way of damages for misleading conduct by Mr Holland, broadly on the basis that Mr Sperl prepared the figures to include the PV sales business in accordance with the retainer, and that if they were used in a misleading way, liability for that lies with Mr Holland.
The issues between the Holland and Sperl parties were simplified at trial. On day three, I was informed that the Holland and Sperl parties had settled the counterclaim by the Holland parties.[26] Further, Mr Wacker, for the Holland parties, admitted that Mr Sperl was instructed to include grid sales in the relevant sales documents.[27] Such an admission cannot bind the plaintiff of course, though as it turned out, that fact was not disputed by the plaintiff, so far as I could identify.
[26] TS3-109 to TS3-110.
[27] Exhibit 32 paragraph 3.
Nonetheless, it is necessary to make some findings of fact about the preparation of the P&L Statements, because they provide necessary context for the plaintiff’s principal allegation about Mr Sperl’s conduct.
In about May 2015, Mr Sperl was telephoned by Mr Holland and told that Wallandale intended selling Solar Xpress because he was experiencing difficulty in finding good managers and Ms Holland did not want to continue. Mr Holland asked him to prepare some figures for Mr Holland to provide to the business brokers. Mr Sperl said that his understanding of his retainer at that time was that:
(a)Mr Holland was intending to sell the Solar Xpress business that Wallandale had bought just two years previously; and
(b)That business included both the PV sales business and the 12V and RV sales business.
I accept that evidence. Further, I find Mr Sperl was perfectly entitled to assume that his retainer was to be carried out consistently with those understandings. I rely on the following matters:
First, Mr Sperl knew from his earlier involvement that the business purchased had both elements, and he knew that the PV sales business was an important part of Solar Xpress (at least in Mr Holland’s eyes). It is reasonable to infer that his ongoing involvement in the Wallandale business would have made him aware that that side of the business was continuing.
Second, Mr Sperl gave evidence, in some detail, of the process he went through in settling the P&L Statements. That evidence is helpfully summarised in Ms Marr’s trial submissions on behalf of the Sperl parties.[28] It is sufficient to note that:
(a)The MYOB drafts provided to Mr Sperl by Ms Johnson were consistent with his understandings. They included PV sales by Solar Xpress;
(b)Mr Sperl’s work was consistent with his understanding as to the scope of the business being sold; and
(c)At no stage did anyone from the Holland parties suggest that his understandings were mistaken.
[28] See paragraphs 27 to 33 of Ms Marr’s trial submissions.
Most of the adjustments made to the draft P&L Statements by Mr Sperl were directed at properly disentangling the affairs of Solahart Sunshine Coast from Solar Xpress. It is hardly surprising that some inaccuracies would exist where both businesses were run by the same company with the same ABN.
There was some criticism of Mr Sperl’s work in this regard in Mr Ponsonby’s so-called “Misrepresentation Report”, which went beyond merely the inclusion of PV sales in the P&L Statements. However, nothing was made of these at trial nor, so far as I could discern, in the O’Connell parties’ trial submissions. I do not intend to consider them further in this judgment. Certainly, nothing raised in cross-examination of Mr Sperl at the trial materially impacted on the substantive accuracy of the P&L Statements apart from the inclusion of the PV sales.
No breach of duty by Sperl Parties
The plaintiff alleged that Mr Sperl’s preparation of the P&L Statements, separate from the conversation on 7 October 2015 dealt with below, gave rise to a breach of a tortious duty of care allegedly owed by Cancourt to the plaintiff in preparing the P&L Statements. It is convenient to deal with that issue here.
The gravamen of the O’Connell parties’ argument, as developed, was that Mr Sperl knew Solar Xpress traded in PV sales that were branded Solahart and that the MYOB figures he received included those sales. He therefore owed a duty of care, it was alleged, to potential purchasers to take reasonable steps to inquire of Mr Holland whether the PV sales were to be included in the sale. He did not meet that standard by simply assuming that Mr Holland intended to sell the same business as Wallandale bought.
This case fails for several reasons, even assuming that Mr Sperl and Cancourt owed a duty to take care, in the preparation of the P&L Statements, to third party recipients (a point which might be seriously doubted).
(a)First, I do not accept that Mr Sperl knew that the PV sales were Solahart branded products. As I have explained, despite the tenor of the website, it was not in dispute at trial that the PV products were sold wholesale by Solahart, not manufactured by Solahart. The factual premise of the argument is wrong. Further, it was not in dispute that someone other than Wallandale would be free to obtain PV products from those same manufacturers if unencumbered by a dealership agreement with Solahart.
(b)Second, as I have found, absent some comment to the contrary from Mr Holland, it was reasonable for Mr Sperl to assume that the business to be sold was the one purchased just two years before. And that assumption was reinforced by the MYOB figures sent to him. It was further reinforced by the fact that the figures sent in draft, and the queries made from time to time by Mr Sperl to Mr Holland, were obviously premised on the assumption that the grid sales business was included. Yet Mr Holland never corrected that assumption.[29] If Mr Sperl was entitled to make that assumption in inferring the scope of his retainer, it is difficult to see how some different obligation could be owed in tort to third parties remote to that contractual agreement.
(c)Third, the Holland parties’ contentions fail to grapple with causation. Assuming Mr Sperl should have asked Mr Holland whether he was including the PV sales business in the sale, that breach of duty could only have an impact if it would have resulted in Mr Sperl being told to exclude them. That was never put to Mr Holland. Indeed, unless Mr Holland was deliberately deceiving Mr O’Connell about what was being sold under the Contract (which I do not accept), it is more likely than not he would have told Mr Sperl to include the PV sales. In any event, in all the circumstances, I am not persuaded that he would have given the opposite instructions.
(d)Finally, it seems to me that in any event, Mr Sperl did give Mr Holland the opportunity to clarify what was being sold and that Mr Holland did not take it up. I refer to the draft Information Memorandum provided on 21 June 2015.[30] The second page of the draft states:
[29] Exhibit 1, Tabs 8 (especially page 13 showing grid sales), 21 and 23.
[30] Exhibit, 1, Tab 8 (at page 10) and Tabs 21 and 23.
BUSINESS PROFILE:
VINCE WILL PROVIDE
REVENUE IS EARNED FROM:
BRIEF DESCRIPTION OF MAIN REVENUE STREAMS
(e)Mr Holland never completed this Information Memorandum nor responded to Mr Sperl about it. However, it certainly should have prompted Mr Holland to address the scope of the business being sold.
For these reasons, the claim by the plaintiff against the Sperl parties arising other than in reliance on the 7 October conversation fails.
Mr O’Connell expresses interest
Mr O’Connell emigrated from South Africa to Australia in 2003. Up to about 2015, he owned and operated a battery business (Turbo Batteries) and a PV sales business (Free Sun Solar). He sold those businesses in about September 2015 and was looking for a new business to acquire. It was in that context that he became aware from an internet search that Solar Xpress was for sale.
Mr O’Connell was familiar with Solar Xpress. He had supplied products to that business for many years, though the products supplied appear to have been related to the 12V and RV side of the business.[31] He knew a good deal about the history of the business: he knew it was started by Mr Hoyes in 1986 at Glasshouse Mountains. He also conceded he knew Solar Xpress sold PV grids “up to a point and then grid sales were all done through Solahart”.[32] Even if the phrase “through Solahart” is ambiguous, this evidence is significant. If I accept that Mr O’Connell’s state of mind as at late 2015 was as he said, then it might be more easily accepted that he did not believe he was buying a business which included grid sales. That would follow because, as will be seen, it is common ground that both parties understood that no Solahart dealership rights were included in the sale.
[31] TS1-120.38 to TS1-121.3.
[32] TS2-84.16 to .17.
Mr O’Connell contacted Ms Donahoe, who worked with Savvy Business Brokers, and she sent Mr O’Connell by email the following documents.
By email sent Monday 7 September 2015 at 11.12 am, she provided:
(a)An executive summary (the Executive Summary):[33]
[33] Exhibit 1 page 61.
Executive Summary Solar Express
Type of business: Caravan and RV Accessories Store
Established: over 25 years
Current owner: 2013
Reason for sale: Scaling down business involvements
Sale Price: $270,000 plus SAV
Annual Sales: $1.1M
Adjusted Net Profit: $150,000 (one working owner)
Estimated equipment value: $40,000
Lease: Expires February 2016 plus 3 yr option
Rent: $142,000
Staff: 3 fulltime (currently run completely under management)
(b)An overview document (the Overview):[34]
[34] Exhibit 1 page 62.
Business Overview – Solar Express
Everybody knows that caravans equal baby boomers and baby boomers equal a booming business and this award winning business is certainly no exception to that rule.
Situated right on the Bruce Highway with amazing roadside exposure to the rear of the building and surrounded by some of the biggest caravan manufacturers and suppliers in SE QLD you would be hard pushed to find a more perfect location to situated.
Known Australia wide, this impressive set up has holiday makers coming from far and wide to the one stop shop for all their caravanning needs. With everything RV from solar to battery systems, audio to awnings and refrigerators to reversing cameras being bought and installed all in the one spot. Caravan and motor home products and installations, UHF radios, inverters, diesel heaters it’s all there and the team have built a fantastic reputation for their customer service and helpful advice along the way.
The exciting thing here is you can take advantage of the 400sqm showroom and grow this business by adding more mechanical services, van sales or even an add on complementary business and watch those profits soar- the sky is the limit here.
In operation for over 25 years and with net profits of approx. $150,000 to one working owner, this means there is plenty of room to sneak away for a few trips of your own and leave the capable staff in charge!
Plenty of options here to grow and expand or sit and relax- either way you can be assured that the “booms” in this industry are not going to fade anytime in the near future so it’s a great time to be making the most of such an exciting industry and getting yourself a front row seat to the action.
$270,000 plus SAV
Call Debra Donahoe today on 0411 660 741 or email: [email protected]
Oddly, given the significance of the PV sales to the trading performance of Solar Xpress, neither document mentions, even by implication, PV sales.
Mr O’Connell then immediately asked for the following information:[35]
Hi Debra,
Thanks for the prompt feedback. Could we start with the following 1.Please could you supply the last 3 years financials 2.Current Lease agreement 3. Payment summary for the last 3 years as per ATO 4. Staff entitlements 5.List what is under “plus SAV” 6.Accual vs Adjusted net profitRegards Derek
[35] Exhibit 1 page 63.
Ms Donahoe responded at 2.43 pm on 7 September, providing some of the information sought, along with the P&L Statements and the lease. The P&L Statements provided:[36]
WALLANDALE SOLAR EXPRESS PTY LTD
PROFIT & LOSS STATEMENT: 2013 ,2014 & 31/5/2015
[36] Exhibit 1 page 65(a).
1/7/2014 to 31/5/2015 2014
16/2/2013 to 30/06/2013 Sales 1,093,772.00 1,228,317.00 547,828.00 Cost of Goods Sold - Opening Stock 164,027.00 152,985.00 0.00 - Purchases 556,626.00 672,331.00 405,541.00 - Closing Stock 148,000.00 164,027.00 152,985.00 572,653.00 661,289.00 252,556.00 Gross Profit 521,119.00 567,028.00 295,272.00 Other Income 643.00 148.00 0.00 $ 521,762.00 $ 567,176.00 $ 295,272.00
Less Expenses - Accountancy Fee 1,723.00 1,750.00 1,750.00 - Advertising 29,320.00 32,080.00 13,536.00 - Bank Charges 468.00 561.00 1,280.00 - Commission 8,888.00 8,243.00 3,553.00 - Computer Supplies 558.00 3,074.00 1,467.00 - Freight & Cartage 1,206.00 3,173.00 3,244.00 - General Expenses 1,361.00 1,184.00 2,637.00 - Insurance 1,312.00 1,543.00 1,312.00 - Heat, Light & Power 4,894.00 5,634.00 2,416.00 - Printer & Copier 7,121.00 6,462.00 4,522.00 - Printing & Stationary 1,138.00 1,873.00 833.00 - Occupancy Expenses 142,906.00 137,409.00 61,673.00 - Repairs & Maintenance 2,559.00 4,815.00 4,949.00 - Rubbish Removal 2,860.00 2,329.00 1,421.00 - Security 1,320.00 1,440.00 600.00 - Staff Amenities 266.00 1,056.00 1,001.00 - Superannuation 16,501.00 18,873.00 9,350.00 - Telephone Expenses 17,349.00 11,379.00 4,997.00 - Tools & Workshop 790.00 2,011.00 492.00 - Wages 178,970.00 209,679.00 107,602.00 - Workcover 1,789.00 3,145.00 1,076.00 Total Expenses
423,299.00 457,713.00
229,711.00
Net Profit $ 98,463.00 $ 109,463.00 $ 65,561.00
The lease was in the name of Wallandale as lessee. The only part of the lease which was referred to in the trial was Item 5 in the Schedule - “Permitted Use”, which provides “Manufacturing of Solar Power equipment”. This was so vague as not materially to assist in resolving the issues in the trial.
At around this time, Mr O’Connell also visited the Caboolture store. He said he went there to confirm if it was the same business as was advertised. He arrived unannounced. He denied that he saw a sign on the front of the store advertising PV sales (see paragraph [18] above), though I have found it was present. He denied that he was interested in the business as a vehicle for PV sales. That is a more reliable statement. As I have said, I consider that the emphasis in the documents in paragraph [49] above focused on the 12V and RV side of the business, and I accept this caused Mr O’Connell to do the same.
The 15 September 2015 meeting
Mr O’Connell responded to the above emails on 8 September 2015 as follows:[37]
Hi Debra
Please could answers the following
1. What will happen with Solar express Coolum?
2. What accounting software do they use?
3. Can they provide a list of sales per group lots eg inverters, chargers, etc 4. Would we still be able to market the Solar Hot water products?It might me easier if I could have a meeting with the owners
Regards
Derek
[37] Exhibit 1 page 67.
This email reveals Mr O’Connell’s state of knowledge about Solar Xpress. It reveals he was aware of a link between the business he was buying and the operation in Coolum (though he referred to it as Solar Xpress Coolum). It reveals he was aware of sales of inverters. These are used in PV sales but there was no evidence that they were not also used in 12V systems for recreational vehicles. It reveals he was aware the business marketed solar hot water products.
A meeting then occurred as suggested by Mr O’Connell at the Savvy offices on 15 September 2015 at about 11 am (the 15 September meeting). There were three people present: Mr Holland, Mr O’Connell and Ms Donahoe. Conduct by Mr Holland at this meeting is relied upon as comprising incorrect, misleading or deceptive conduct. It is convenient to set out how that is pleaded by the plaintiff at this point, so that the pleaded case can be measured directly against the evidence.
Paragraph 17 of the statement of claim[38] alleges (using naming conventions from this judgment for convenience):
At the 15 September meeting Mr Holland, on behalf of Wallandale, orally represented to Mr O’Connell on behalf of the plaintiff that:
(a)documentation to verify the information in the Executive Summary, the Overview and the P&L Statements would not be available due to Wallandale having operated two businesses, including the Solar Xpress business, using the same Australian Business Number;
(b)the information in the Executive Summary, the Overview and the P&L Statements, in particular the P&L Statements, was accurate in that it did not contain Sales from any other business of Wallandale except for the Solar Xpress business;
(c)the P&L Statements had been completed by Mr Sperl;
(d)Mr Sperl was Wallandale’s external accountant who had been engaged for the purpose of the providing the P&L Statements and excluding any other amounts not relevant to the Solar Xpress business.
[38] Fifth Further Amended Statement of Claim filed 22 August 2020.
Paragraph 17(a) was not pressed at trial.[39] Ms Donahoe was not called. There are, therefore, three sources of evidence of what passed at this meeting: Mr O’Connell’s version, Mr Holland’s version and a diary note prepared by Mr O’Connell.
[39] See paragraph 103 of Mr Brennan’s trial submissions.
In chief, Mr O’Connell, relevantly, said this:[40]
…Can you take me through what you said and what other people said during that meeting as best as you can recall? …The second thing was how did he separate his businesses, because he was operating a few businesses under one ABN.
Okay. Okay. Well, first of all, how did you come to know that, that he was operating a number of businesses under the same ABN? Because I’ve been – I’ve known that industry for a while. I knew that was the same owners.
Okay. Okay. Owners of what? SolarXpress/Solahart.
Okay. And was that just at Caboolture, was it? At Caboolture and Coolum.
Okay. Keep going. Sorry, I – I didn’t mean to interrupt you about your recollection of the meeting? Okay. So my – I wanted to know how he had separated the figures, and he said that he had employed an external accountant. Separate figures are set out [indistinct] he said, “Well, they’ve been done recently,” because he’s only decided to sell in the last few months… I asked him what would happen to any of the warranties, ie, the Solahart or anything like that, because it was under one ABN number. He said that Solahart would take care of that. I asked him if I could market the Solahart products and he said no because it can only be marketed through the Solahart dealership…
[40] TS1-125.42 to TS1-126.25.
Mr O’Connell then explained that the diary note in evidence was typed up by him from his handwritten notes of the meeting.[41] It is convenient to set out the note here:
[41] Exhibit 1 page 72.
Meeting at Savvy offices 15/09/2015 11am
Present: Debra Donahoe, Vince Holland and myself (Derek O’Connell)
Questions: Answers
Cost to move out - Lease states only a coat of paint
Brake down of sales as per P & L - Daughter can supplier
Company insurance seems low -Will check
Staff entitlements and salary brake down - All staff is less than 2 years ,will supply
How accurate is the latest P & L - done by external accountant
How much was the previous owners turning over- Not sure ,books were in a mess
Reason for selling- Daughter was to bet married and have a family
Impact the internet has had on sales - not sure
Who will carry the warranties for past work - e.g. grid connects - Solar Hart
How much stock is slow moving (not sellable) - stock has been run down
Explain Commissions- When staff reach target they get $100 to max $300 per week
List of asset - on asset list
Who is main competitor - not sure
How much income comes from sales other than Solar Express Caboolture - All Has been removed
What happing with Solar Express Coolum- not operating
What accounting system do you use- Retail manager and MYOB
Can you give sales per group-Daughter can
In cross-examination by Mr Wacker, he relevantly said:[42]
[42] TS2-87.43 to TS2-88.14 and TS2-88.40 to TS2-89.23.
Can you go please to tab 32. You see about half way down the page, one of the questions that you wrote down was, “Who will carry the warranties for past work eg. Grid connects. Do you see that? Yes.
So at least, by this stage, the 15th of September 2015, you knew that this business included the business of Grid Connects? No.
Well, that’s why you wrote Grid Connex there? No. Because they are the same ABN number.
…It wouldn’t concern you, would it, if the business you were buying did not include Grid Connex any warranty obligations would be of no concern to you? I don’t know about that.
Well, there’s a very simple answer. You knew that this business included Grid Connex and you were concerned that you did not want to incur the liability for any past work. That’s the answer, isn’t it? No.
…
Your reference to who will carry the warranties for past work, eg. Grid Connex/Solahart, Solahart is a reference to Wallandale’s other business Sunshine – Solahart Sunshine Coast? It’s a reference to a grid sale that – that was sold out of there – Solahart dealership.
So you knew at this stage that the business had a Solahart dealer agreement? Not – not the business, the company.
The company. You knew that the company Wallandale ? Yes… had a Solahart dealership agreement? Correct.
And you knew that that dealership agreement was not going to be transferred to you as part of the sale of the business? Correct.
But you likewise knew, having been in the solar industry for some time, that you could acquire solar panels and inverters and all the other bits and pieces needed for grid sales from any number of suppliers? Correct.
HIS HONOUR: I hope this will be a fairly neutral question. Does Solahart supply also panels and equipment for grids to install residential PV cells? Yes, but only to the dealership.
Yes. Yes. But they – I know – I mean, everyone knows, I think, that they sell hot – sell the hot water, but they also supply equipment for grid ? Yes.
Grid systems? Yes. They in-trade
Right? Yes.
But only to their dealers [indistinct]? Through their dealership.
[underlining added]
And in cross-examination by Ms Marr, the following evidence emerged for the first time:[43]
[43] TS2-107.34 to TS2-108.1.
So, I understand this to be your typed up minutes of the meeting on the 15th of September. There’s just one aspect of that that I wanted to ask you about, which is: the line, kind of fourth up from the bottom, “how much income from sales other than Solar Xpress Caboolture” - can you see that? Yes.
Now, your answer there: “all has been removed” ? Yes.
…or the answer you’ve transcribed there, what did you mean; what did you understand? From that?
Yes? That any other business sales other than what I was purchasing have been removed, which was from Caboolture RV and 12 Volt Superstore.
Yes. And who do you recall - did you ask that question at the meeting? Correct.
And do you remember who answered that? Vince Holland.
[underlining added]
In examination in chief, Mr Holland claimed little recollection of the discussion at the 15 September meeting and, to be fair to him, in my view he did not try to reconstruct a recollection, even when shown the diary note made by Mr O’Connell.[44] In examination by Ms Marr, he said this:[45]
If I can get you, Mr Holland, to cast your eye down to the question that’s fourth from the bottom of that page, “How much income” ? Mmm…. “comes from sales other than Solar Xpress Caboolture?” Do you recall there being any discussion along those lines at the meeting on the 15th of September 2015? I vaguely recall that one, yes.
And do you recall whether Mr O’Connell asked you that question? Well, I assume so. I guess that’s why we had a meeting, but no, I don’t recall specifically him saying – looking at me.
Do you recall there being – so you recall there being some discussion along those lines. And do you recall saying to O’Connell that all the sales – something along the lines that all the sales from other than Solar Xpress Caboolture had been removed? I do recall saying similar to those lines, yes. Yes.
And what were you referring to there when you’re saying “had been removed”? Sales related to Solahart inquiries through Solahart.
Had been removed from what? I presume from the figures that Melin did.
So you don’t recall, or you do? I don’t recall specifically. I’m just saying I – I just sort of vaguely recall that conversation, yeah.
Do you recall saying to Mr O’Connell that all the sales relating to Sunshine Coast Solahart had been removed from the figures that he had been given? Is that a fair summary? Yeah, fair summary. Yep.
[44] TS4-26.26 to TS4-28.5.
[45] TS4-53.38 to TS4-54.20.
Mr Brennan’s cross-examination focused on the note, “Who is the main competitor? Not sure”. He suggested to Mr Holland that if the business being sold included the PV sales business, after the sale, Wallandale would have been the main competitor. Mr Holland volunteered a main competitor for the 12V and RV side of the business called Springer’s in the northside of Brisbane. This cross-examination was on a diary note Mr Holland did not prepare or accept as accurate. It was hard to draw anything from this exchange. Otherwise, the 15 September meeting was not explored in cross-examination.
Findings on 15 September meeting
There are three points to make about this meeting.
First, the O’Connell parties submit that I should find that two representations were made:
(a)That Mr Holland said that the P&L Statements were done by an external accountant; and
(b)That Mr Holland said income from sales other than Solar Xpress Caboolture had been removed.
It seems uncontentious, based on the above evidence, that those statements were made by Mr Holland. I find that words to that effect were said by him. The former point is not contentious. As to the latter, whether it was misleading depends on whether the PV sales were properly sales of Solar Xpress. As I find in paragraph [29] above, they were because the PV sales business was conducted by Wallandale as part of the Solar Xpress business.
Second, Mr Wacker submitted, based on the underlined passage in paragraph [62], that I ought to find that at the 15 September meeting, Mr O’Connell believed that grid connections were part of the Solar Xpress business. On their own, I am not persuaded that the answers in cross-examination establish that matter. Mr O’Connell was having his first discussion about Solar Xpress. He was aware that it operated through Solahart and that Wallandale sold Solahart PV products, as well as Solar hot water products under dealership.
It is also seemingly common ground that both parties were aware that no Solahart dealership would be available for the Solar Xpress business. An odd aspect of this is that no mention of this appears in the diary note. However, Mr O’Connell said it was said by Mr Holland, and it is logical that it would have been said, given the other matters discussed.
Given those considerations, the fact that he wanted to be sure that no warranty obligations came with the business is understandable and does not necessarily mean that he was assuming the Solar Xpress business being sold did not include PV sales. It is equally consistent with seeking to ensure that he did not end up with warranty obligations unrelated to the business he was buying.
Third, I refer to the evidence given to Ms Marr in paragraph [63] above. If Mr O’Connell had ever given instructions to that effect before, it would have loomed large in his pleading and in his evidence in chief. It was not pleaded. It was not referred to in the O’Connell parties’ trial submissions. It was not volunteered in evidence in chief, nor is it recorded in the diary note. In my view, the underlined evidence was reconstructed in the witness box when the opportunity presented itself. To that extent, it gives me cause to be a little cautious in accepting Mr O’Connell’s reliability on contentious points of detail.
The Contract
Six days after the 15 September meeting, and seemingly without any legal advice, the plaintiff and Wallandale signed the Contract. Mr O’Connell must have had some input into the text, because it includes his solicitor’s and accountant’s names. The Contract is a standard form REIQ Business Sale Contract.
It relevantly provides by the Items Schedule (and relevant Standard Conditions):
(a)By Item A: that it was dated 21 September 2015;
(b)By Item D: Mr Sperl’s name and contact details;
(c)By Item J:[46]
[46] Exhibit 1 page 76.
J THE BUSINESS
NOTE 3 Clause 3 (a) Type of business 12V & RV Retail Store (b) Located at: (the premises) ADDRESS: 55-57 Lear Jet Drive STATE: QLD POSTCODE: 4510 SUBURB: Caboolture (c) Known as: Solar Panel Xpress (d) Registered Business Name/s: (e) Registered Business No.: (f) Trade Mark Registration No.: (if any) Clause 14 (g) Telephone No. of the Business: 07 5495 6222 (h) Facsimile No. of the Business: (i) Email address of the Business (j) Website address of the Business: (k) Domain Name (d)By Clause 3.1 of the Standard Conditions (importantly as will be seen):[47]
[47] Exhibit 1 page 86.
3 THE BUSINESS
3.1 The Business includes the goodwill, fixtures, fittings, furniture, chattels and the plant and equipment, industrial and intellectual property, work-in-progress (if any), and stock-in-trade, permits, licences, and other assets set out in any schedules attached to this Contract (but excluding any Excluded Assets) and which assets are in this Contract referred to as the “Business Assets”.
(e)By Item L:[48]
[48] Exhibit 1 page 76, items (a)-(c).
LPURCHASE PRICE
NOTE 6 (a) Price: $ 250,000.00 + SAV Clause 5 (b) Deposit: $ 22,000.00 Clause 6 (c) Balance: $ 228,000.00
(f)By Item M:[49]
[49] Exhibit 1 page 76.
M STOCK-IN-TRADE
NOTE 5 Stock-in-trade (Estimated): $ 120,000 Clause 4 (a) Nominated date of Stocktake: The business day prior to the Completion Date. (b) Maximum: $ 120,000 Work-in-progress: (Estimated) $ (g)By Item O:[50]
[50] Exhibit 1 page 77.
O APPORTIONMENT OF PURCHASE PRICE
NOTE 7 Assets: $ Industrial & Intellectual Property: $ Goodwill: $ PURCHASE PRICE (excluding Stock-in-trade and Work-in-progress) $ 250,000.00 Estimated Stock-in-trade: $ 120,000.00 Estimated Work-in-Progress: $ TOTAL ESTIMATED PRICE - (including estimated Stock-in-trade and Work-in-Progress) $ 370,000.00 (h)Item P provided for completion on 24 November 2015;
(i)Item U required Mr Holland to provide post-Contract assistance for five business days;
(j)Item W provided:[51]
W RESTRICTION OF SELLER’S COMPETITION
[51] Exhibit 1 page 79.
Clause 12 (a) Prescribed area: 100KM (b) Prescribed period: 3 Years (k)Clause 12 of the Standard Conditions provided:[52]
[52] Exhibit 1 page 90.
12 RESTRICTION ON SELLER’S COMPETITION
12.1The Seller must not in any manner whatsoever either directly or indirectly be concerned or interested either alone or in partnership with or as manager servant or agent for any other person, company or corporation in the Business described in Item J or any other business of a similar nature within the prescribed area as set out in Item W(a) for the prescribed period as set out in Item W(b). If either the period set out in Item W(b) or the area set out in Item W(a) be found to be excessive and unenforceable by any Court of competent jurisdiction then the Buyer may serve upon the Seller notice of variation of this Clause and Items W(a) and (b), specifying a reduced period and area and upon the service of such notice the period and area shall be so reduced and the parties agree to be bound by the provisions of this Clause as varied by the notice of variation. Nothing in this Clause 12.1 prevents any Court of competent jurisdiction from reading down the area or period of restraint if such Court is empowered to do so in order to validate these restraints.
12.2 The parties agree that:
(a) this Clause 12 is for the benefit of the Buyer to protect the goodwill of the
Business; and
(b) if the Seller is a company or a corporation then the Seller will on or before the
date of Completion obtain a covenant in terms of Clause 12.1 from the directors and shareholders of the Seller in favour of the Buyer.
The Contract relevantly provided by the Special Conditions:[53]
[53] Exhibit 1 pages 81 and 82, Clauses 3 and 5.
3.Representations
3.1 The Buyer warrants that the Buyer has:-
3.1.1not relied on any statements or representations made by the Seller or the Seller’s Agent or any other person on behalf of the Seller, verbally or in writing unless stated in the Contract;
3.1.2relied on the Buyer’s own investigations and judgment before signing this Contract;
3.1.3been advised by the Seller’s Agent to obtain independent legal and financial advice.
3.2The Buyer acknowledges that the Seller has signed this Contract relying on the Buyer’s warranty.
Third, there is no reason to think that Mr O’Connell would have had any concerns about taking on a business which included PV sales. He knew all about that business from his previous business activities and his subsequent activities showed he had not lost his touch with PV business.
Fourth, Mr O’Connell was demonstrably willing to pay the purchase price for a business with the sales figures shown in the P&L Statements. Those figures might have failed to warn of the effect, if any, of not being able to trade in Solahart-marketed PV products, but they otherwise reflected the sale figures for the Business offered for sale under the Contract. It is reasonable to infer that if Mr O’Connell had understood the proper effect of the Contract, he would have been inclined to complete the Contract to acquire a business which was very similar (at the least) to the one to which the P&L figures related. A fortiori where, as I have found, he had no difficulty in running a PV sales business.
THE CLAIMS AGAINST THE SPERL PARTIES
The failure of the case against the Holland parties necessarily means the case against the Sperl parties must fail for the same reasons. Further, I have separately concluded that:
(a)The claim against the Sperl parties based on the provision of the P&L Statements fails in any event (see paragraphs [42] to [45] above); and
(b)The claim against the Sperl parties based on the 7 October conversation fails in any event (see paragraphs [93] to [98] above).
I should also deal briefly with the accessory liability claim against the Sperl parties. It was never established by the plaintiff that Mr Sperl knew of the limits on the scope of the Business sold under the Contract for which the plaintiff contended. Accordingly, even if the plaintiff had made out its construction of the Contract, it did not establish on the facts that Mr Sperl knew that the P&L Statements were wrong when compared to the Business sold under the Contract. There was no basis established for accessory liability in the Sperl parties.
Finally, it is unnecessary to deal with the Sperl parties’ claims for indemnity from the Holland parties for any liability that they might have had to the plaintiff, given the failure of the plaintiff against Mr Sperl and his company. That counterclaim is otiose given the dismissal of the plaintiff’s claims against the Holland parties.
OTHER ISSUES
There remain a few issues to be dealt with.
Loss issues
Issues arose on the question of the identification of any loss suffered by the plaintiff if it had succeeded on its liability case. Those issues were:
(a)The identification of the true value of the Solar Xpress business conveyed under the Contract; and
(b)The benefits, if any, to the plaintiff of acquiring the business, which had to be considered in determining the loss suffered by the plaintiff from entry into the transaction.
As to the first matter, the plaintiff contended that the business was effectively worthless, and the Holland parties contended that even on the plaintiff’s case the business had some value. In this respect, the plaintiff relied on a valuation by an expert accountant, Mr Ponsonby. The Holland parties relied on a valuation by Mr Lytras, another accountant. The difference between the experts was primarily driven by the different assumptions they were asked to make. Mr Ponsonby valued on the basis that the business sold comprised the 12V and RV business. Mr Lytras valued on the basis contended for by the Holland parties. Not surprisingly, they came to different conclusions.
The Holland parties also cavilled with the proposition that the business was worthless even based on Mr Ponsonby’s assumptions. They contended that:
(a)The business had some value on the premise that it might have been purchased to “buy a job”;
(b)The business should have been valued on the basis of its performance after the sale, consistent with good valuation practice; and
(c)The business had some residual value for plant and equipment.
I did not find any of these arguments persuasive.
As to the first, the income for the job which would have been bought was modest. As I concluded above, it was about $50,000. It seems unlikely one would acquire a business which was making a loss and carried with it the obligations of meeting the salary of a number of staff, just to buy a job of that modest income.
As to the second, the premise of the O’Connell parties’ case was that the business sold was the 12V and RV business only. If that assumption is adopted, then for the reasons given in paragraph [128] above, I am not persuaded that the figures from 2017 and following are relevant to the valuation of the business sold under the Contract. As I explained there, the business, as the plaintiff conducted it in 2017, was entirely different from that sold under the Contract, particularly if the plaintiff’s premise is adopted that only the 12V and RV business was acquired.
As to the third, for the reasons given in paragraphs [132] and [133], I find the value of the plant and equipment was likely to be so modest as to be irrelevant.
As to the question of benefits to the plaintiff of acquiring the business, I reject the argument that the success of the plaintiff from 2017 should tell in favour of the defendants for the reason given in paragraph [128].
However, these findings are moot because the plaintiff failed to establish any of the causes of action advanced.
The plaintiff’s claim under the Contract
The plaintiff sued for breach of contract arising out of the factual allegations that underpinned the tort and the Australian Consumer Law (ACL) claims: i.e. that the P&L Statements induced error because they included the PV sales business when that was not part of the Business under the Contract. That case fails because of the failure of those allegations. However, I wish to say a little more about the plaintiff’s Contract case. The plaintiff submitted that the alleged error in the P&L Statements amounted to a breach of the warranty given by the Seller in Clause 8.1(i) of the Standard Conditions.
The contention depends on the P&L Statements being trading figures relating to the Business (which they were), “particulars of which are set out in any schedule, annexure or appendix to this Contract”. The particulars of the P&L Statements are not evident anywhere in any document in the Contract.
The O’Connell parties submit, however, that the P&L Statements were brought within the scope of those words because the Special Conditions (Annexure A) in Clause 5 require the Seller to provide the Buyer with copies of documents in relation to the financial records of the business, lease and so on. I do not agree that that contention is correct. Clause 5 is a general statement of the kind of documents that the Seller must provide. Clause 5 does not contain particulars of the P&L Statements. On no reasonable reading of Clause 5 could it be said that particulars of the “trading figures” in the P&L Statements are set out. On the other hand, if the particulars referred to are particulars of the P&L Statements, not of the contents of those statements, then the general description in Clause 5 does not amount to particulars of the P&L Statements.
Accordingly, even if the P&L Statements were inaccurate in the manner pleaded, it did not amount to a breach of the Contract.
I also observe that the Holland parties also rely on the Contract as giving rise to a defence. They rely on the warranty in Clause 3.1 of the Special Conditions (set out in paragraph [75] above). It was perhaps because of this provision that the plaintiff did not press a claim against Wallandale based on negligent misstatement. On the other hand, it is well established that such a warranty is no automatic answer to claims based on misleading or deceptive conduct under the ACL. Given that the plaintiff has failed on its ACL claims, it is unnecessary to consider this further.
Wallandale’s counterclaim against the O’Connell parties
On the assumption that the plaintiff succeeded on its claims, Wallandale counterclaimed for breach of contract against the plaintiff for breach of the warranties in Clause 3 of the Special Conditions and Clause 8.3(a) of the Standard Conditions. The premise of the claim was that the plaintiff breached the Contract by making claims based on representations contained in the P&L Statements, contrary to warranties that the Buyer did not rely on any representations and that the Buyer entered into the Contract after its own satisfactory investigation of the business.
Such provisions have consistently failed to exclude liability for breach of s. 18 ACL, and its predecessor provision, nor to provide a basis to recover damages equal to the damages established for misleading or deceptive conduct. Given the outcome of the proceedings, however, no damages could arise on this counterclaim and it is dismissed.
Wallandale also counterclaimed against Mr O’Connell personally as guarantor for any damages payable by the plaintiff under the counterclaim analysed above. That counterclaim is based on the indemnity contained in the guarantee given by Mr O’Connell of the plaintiff’s obligations under the Contract. That counterclaim is also otiose and must be dismissed.
CONCLUSION
For these reasons, the plaintiff’s claims, and the various counterclaims, are all dismissed. I will hear the parties as to costs.
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